A key measure of U.S. economic output grew more slowly in the first half of the year than previously believed, government data released Thursday showed.Conflicting SignalsRevisions brought two measures of output closer together, but it still isn’t clear whether the economy is shrinking or growing. More
U.S. manufacturing is experiencing a rebound, with companies adding workers amid high consumer demand for products.WASHINGTON — Ever since American manufacturing entered a long stretch of automation and outsourcing in the late 1970s, every recession has led to the loss of factory jobs that never returned. But the recovery from the pandemic recession has been different: American manufacturers have now added enough jobs to regain all that they shed — and then some.The resurgence has not been driven by companies bringing back factory jobs that had moved overseas, nor by the brawny industrial sectors and regions often evoked by President Biden, former President Donald J. Trump and other champions of manufacturing.Instead, the engines in this recovery include pharmaceutical plants, craft breweries and ice-cream makers. The newly created jobs are more likely to be located in the Mountain West and the Southeast than in the classic industrial strongholds of the Great Lakes.American manufacturers cut roughly 1.36 million jobs from February to April of 2020, as Covid-19 shut down much of the economy. As of August this year, manufacturers had added back about 1.43 million jobs, a net gain of 67,000 workers above prepandemic levels.Data suggest that the rebound is largely a product of the unique circumstances of the pandemic recession and recovery. Covid-19 crimped global supply chains, making domestic manufacturing more attractive to some companies. Federal stimulus spending helped to power a shift in Americans’ buying habits away from services like travel and restaurants and toward goods like cars and sofas, helping domestic factory production — and with it, job growth — to bounce back much faster than it did in the previous two recessions.Treasury Secretary Janet L. Yellen said that the recovery of manufacturing jobs was a result of the unique nature of the recession, which was induced by the pandemic, and the robust federal response, including legislation like the $1.9 trillion American Rescue Plan of 2021.“We had a huge shift away from services and into goods that spurred production and manufacturing and very rapid recovery in the U.S. economy,” Ms. Yellen told reporters during a trip to Detroit this month. The support for local economies and small businesses included in Mr. Biden’s rescue plan, she said, “has been tremendously helpful in restoring the health of the job market and given the shifting in spending patterns, I think that’s been to the benefit of manufacturing.”American manufacturers, like many industries, have struggled to find raw materials, component parts and skilled workers. And yet, they have continued to create jobs at a rate that has surprised even some longtime promoters of American factory employment.“We have 67,000 more workers today than we had in February 2020,” said Chad Moutray, the chief economist for the National Association of Manufacturers. “I didn’t think we would get there, to be honest with you.”In recessions over the last half century, factories have typically laid off a greater share of workers than other employers in the economy, and they have been slower to add jobs back in recoveries. Often, companies have used those economic inflection points to accelerate their pace of outsourcing jobs to foreign countries, where wages are significantly lower, and to invest in technology that replaces human workers.The State of Jobs in the United StatesEconomists have been surprised by recent strength in the labor market, as the Federal Reserve tries to engineer a slowdown and tame inflation.August Jobs Report: Job growth slowed in August but stayed solid, suggesting that the labor market recovery remains resilient, even as companies pull back on hiring.Job Market Trends: The labor market appears hot, but the supply of labor has fallen short, holding back the economy. Here is why.Gig Workers: Labor activists hoped President Biden would tackle gig worker issues aggressively. But a year and a half into his presidency, little has been done at the federal level.Black Employment: Black workers saw wages and employment rates go up in the wake of the pandemic. But as the Federal Reserve tries to tame inflation, those gains could be eroded.This time was different. Factory layoffs roughly matched those in the services sector in the depth of the pandemic recession. Economists attribute that break in the trend to many U.S. manufacturers being deemed “essential” during pandemic lockdowns, and the ensuing surge in demand for their products by Americans.Manufacturing jobs quickly rebounded in the spring of 2020, then began to climb at a much faster pace than has been typical for factory job creation in recent decades. Since June 2020, under both Mr. Trump and Mr. Biden, factories have added more than 30,000 jobs a month.Sectors that hemorrhaged employment in recent recessions have fared much better in this recovery. Furniture makers, who eliminated a third of their jobs in the 2008 financial crisis and its aftermath, have nearly returned to their prepandemic employment levels. So have textile mills, paper products companies and computer equipment makers.Manufacturers say the numbers could be even stronger, if not for their continued difficulties attracting and hiring skilled workers amid 3.7 percent unemployment.Fernando Torres, vice president of operations for Greene Tweed, a Pennsylvania-based manufacturer of materials and components used by the aerospace and semiconductor industries, said his company has had to become more flexible to attract new workers and offer more attractive salaries and benefits. He has been looking for employees with different backgrounds that the company can train to develop the skills to fill open jobs, and said that it has been hard to retain staff because competitors are aggressively trying to lure them away.But Mr. Torres said that Greene Tweed, which employs just fewer than 2,000 workers, did not plan to give up, considering the demand for his company’s products.“We are looking for lots of employees,” Mr. Torres said. “We are not looking at slowing down.”Chuck Wetherington, president of BTE Technologies, a manufacturer of medical devices based in Maryland, said that he was trying to expand his work force of around 40 by 10 percent. A lack of workers, he said, has become a bigger problem than supply chain disruptions.“Our backlog continues to grow,” Mr. Wetherington said at a National Association of Manufacturers briefing. “I just can’t find the employees.”Mr. Biden has pushed a variety of legislative initiatives to boost domestic manufacturing, including direct spending on infrastructure, tax credits and other subsidies for companies like battery makers and semiconductor factories, and new federal procurement requirements that benefit manufacturers located in the United States. Biden administration officials say those policies could play a decisive role in further encouraging factory job growth in the coming months and years, in hopes of continuing the expansion and possibly pushing factory employment back to pre-2008 levels.Other factors could help hasten more American manufacturing. Delayed deliveries, sky-high shipping prices and other supply chain issues during the pandemic have encouraged some chief executives to think about moving production closer to home. The average price to ship a 40-foot container internationally has fallen sharply in recent months, but it is still three times higher than it was before the pandemic, according to tracking by the freight booking platform Freightos.A container ship at the Port of Los Angeles. As Covid-19 crimped global supply chains, domestic manufacturing became more attractive to some companies.Stella Kalinina for The New York TimesBusinesses are also beginning to question the wisdom of producing so many goods in China, amid rising tensions between Washington and Beijing over trade and technology. The Chinese government’s insistence on a zero-Covid policy, despite the severe disruptions it has caused for the economy, has especially shaken many executives’ confidence in their ability to operate in China. Mr. Biden has also maintained many tariffs on Chinese imports imposed by Mr. Trump.“The pandemic response by China has definitely prompted more than a rethink on where to put new money. I think we are actually beginning to see action,” said Mary Lovely, a professor of economics at Syracuse University and a senior fellow at the Peterson Institute for International Economics. How much of that investment came to the United States was unclear. “I don’t think anyone really knows,” she added.Ed Gresser, the vice president of trade and global markets at the Progressive Policy Institute, a left-leaning think tank, said that the United States had seen a noticeable uptick in new manufacturing establishments since 2019, especially in the pharmaceutical sector, which might be a response to the pandemic. Food and beverage establishments have also continued to grow.But while growth in the U.S. manufacturing sector was strong last year, so were imports of manufactured goods, Mr. Gresser said. That suggests, he said, that the growth of manufacturing probably reflects strong consumer demand in the United States through the pandemic, rather than a shift to production in the United States.While attitudes toward doing business in China have quickly soured, patterns of production have been slower to change. A survey of 117 leading companies released in August by the U.S. China Business Council found that business optimism had reached record lows, but U.S. corporations remained overwhelmingly profitable in China, which is still home to the world’s most expansive ecosystem of factories and a lucrative consumer market.Eight percent of the surveyed companies reported moving segments of their supply chain out of China to the United States in the past year, while another 16 percent had moved some operations to other countries. But 78 percent of the companies said they had not shifted any business away from China.The Biden administration is hopeful that new policies — including a manufacturing competitiveness law and a climate law the president signed this summer — will encourage more companies to leave China for the United States, particularly cutting-edge industries like clean energy and advanced computing.Brian Deese, the director of the National Economic Council, said in an interview that the laws were already changing the calculus for investment and job creation in the United States. In recent weeks, White House officials have promoted factory announcements from automakers, battery companies and others, directly linked to the climate bill.“One of the most striking things that we are seeing now,” Mr. Deese said, “is the number of companies — U.S. companies and global companies — that are committing to build and expand their manufacturing footprint in the United States, and doing so based on their view that not only did the pandemic highlight the need for more resilience in their supply chains, but that the United States is creating a policy environment that makes long term investment here in the United States more attractive.” More
Federal Reserve officials and their counterparts around the world are trying to defeat inflation by rapidly raising interest rates. They know it will come at a cost.A day after the Federal Reserve lifted interest rates sharply and signaled more to come, central banks across Asia and Europe followed suit on Thursday, waging their own campaigns to crush an outbreak of inflation that is bedeviling consumers and worrying policymakers around the globe.Central bankers typically move slowly. That’s because their policy tools are blunt and work with a lag. The interest rate increases taking place from Washington to Jakarta will need months to filter out across the global economy and take full effect. Jerome H. Powell, the Fed chair, once likened policymaking to walking through a furnished room with the lights off: You go slowly to avoid a painful outcome.Yet officials, learning from a history that has illustrated the perils of taking too long to stamp out price increases, have decided that they no longer have the luxury of patience.Inflation has been relentlessly rapid for a year and a half now. The longer that remains the case, the greater the risk that it is going to become a permanent feature of the economy. Employment contracts might begin to factor in cost-of-living increases, companies might begin to routinely raise prices and inflation might become part of the fabric of society. Many economists think that happened in the 1970s, when the Fed tolerated out-of-control price increases for years — allowing an “inflationary psychology” to take hold that later proved excruciating to crush.But the aggressiveness of the monetary policy action now underway also pushes central banks into new and risky territory. By tightening quickly and simultaneously when growth in China and Europe is already slowing and supply chain pressures are easing, global central banks risk overdoing it, some economists warn. They may plunge economies into recessions that are deeper than necessary to curb inflation, sending unemployment significantly higher.“The margin of error now is very thin,” said Robin Brooks, chief economist at the Institute of International Finance. “A lot of this comes down to judgment, and how much emphasis to put on the 1970s scenario.”In the 1970s, Fed policymakers did lift interest rates in a bid to control inflation, but they backed off when the economy began to slow. That allowed inflation to remain elevated for years, and when oil prices spiked in 1979, it reached untenable levels. The Fed, under Paul A. Volcker, ultimately raised rates to nearly 20 percent — and sent unemployment soaring to more than 10 percent — in an effort to wrestle the price increases down.That example weighs heavily on policymakers’ minds today.“We think that a failure to restore price stability would mean far greater pain later on,” Mr. Powell said at his news conference on Wednesday, after the Fed raised rates three-quarters of a percentage point for a third straight time. The Fed expects to raise borrowing costs to 4.4 percent next year in the fastest tightening campaign since the 1980s.The Bank of England raised interest rates half a point to 2.25 percent on Thursday, even as it said the United Kingdom might already be in a recession. The European Central Bank is similarly expected to continue raising rates at its meeting in October to combat high inflation, even as Russia’s war in Ukraine throws Europe’s economy into turmoil.As the major monetary authorities lift borrowing costs, their trading partners are following suit, in some cases to avoid big moves in their currencies that could push up local import prices or cause financial instability. On Thursday, Indonesia, Taiwan, the Philippines, South Africa and Norway lifted rates, and a large move by Switzerland’s central bank ended the era of below-zero interest rates in Europe. Japan has comparatively low inflation and is keeping rates low, but it intervened in currency markets for the first time in 24 years on Thursday to prop up the yen in light of all of the action by its counterparts.The wave of central bank action is expected to have consequences, working by design to sharply slow both interconnected commerce and national economies. The Fed, for instance, sees its moves pushing U.S. unemployment to 4.4 percent in 2023, up from the current 3.7 percent.A housing development in Phoenix. Climbing interest rates are already making it more expensive to borrow money to buy a car or purchase a house in many nations.Adriana Zehbrauskas for The New York TimesAlready, the moves are beginning to have an impact. Climbing interest rates are making it more expensive to borrow money to buy a car or a house in many nations. Mortgage rates in the United States are back above 6 percent for the first time since 2008, and the housing market is cooling down. Markets have swooned this year in response to the tough talk coming from central banks, reducing the amount of capital available to big companies and cutting into household wealth.Yet the full effect could take months or even years to be felt.Rates are rising from low levels, and the latest moves have not yet had time to fully play out. In continental Europe and Britain, the war in Ukraine rather than monetary tightening is pushing economies toward recession. And in the United States, where the fallout from the war is far less severe, hiring and the job market remain strong, at least for now. Consumer spending, while slowing, is not plummeting.That is why the Fed believes it has more work to do to slow the economy — even if that increases the risk of a downturn.“We have always understood that restoring price stability while achieving a relatively modest increase in unemployment, and a soft landing, would be very challenging,” Mr. Powell said on Wednesday. “No one knows whether this process will lead to a recession, or if so, how significant that recession would be.”Many global central bankers have painted today’s inflation burst as a situation in which their credibility is on the line.“For the first time in four decades, central banks need to prove how determined they are to protect price stability,” Isabel Schnabel, an executive board member of the European Central Bank, said at a Fed conference in Wyoming last month.A FedEx worker making deliveries in Miami Beach. Consumer spending in the United States, while slowing, is not plummeting.Scott McIntyre for The New York TimesBut that does not mean that the policy path the Fed and its counterparts are carving out is unanimously agreed upon — or unambiguously the correct one. This is not the 1970s, some economists have pointed out. Inflation has not been elevated for as long, supply chains appear to be healing and measures of inflation expectations remain under control.Mr. Brooks at the Institute of International Finance sees the pace of tightening in Europe as a mistake, and thinks that the Fed, too, could overdo it at a time when supply shocks are fading and the full effects of recent policy moves have yet to play out.Maurice Obstfeld, an economist at the Peterson Institute for International Economics and a former chief economist of the International Monetary Fund, wrote in a recent analysis that there is a risk that global central banks are not paying enough attention to one another.“Central banks clearly are scrambling to raise interest rates as inflation runs at levels not seen for nearly two generations,” he wrote. “But there can be too much of a good thing. Now is the time for monetary policymakers to put their heads up and look around.”Still, at many central banks around the world — and clearly at Mr. Powell’s Fed — policymakers are treating it as their duty to remain resolute in the fight against price increases. And that is translating into forceful action now, regardless of the imminent and uncertain costs.Mr. Powell may have once warned that moving quickly in a dark room could end painfully. But now, it’s as if the room is on fire: The threat of a stubbed toe still exists, but moving slowly and cautiously risks even greater peril. More
Federal Reserve officials made another large rate increase and signaled more to come, pledging to quash inflation despite expected pain.The Federal Reserve raised interest rates by three-quarters of a percentage point in an attempt to lower inflation back to 2 percent.Drew Angerer/Getty ImagesFederal Reserve officials, struggling to contain the most rapid inflation in 40 years, delivered a third big rate increase on Wednesday and projected a more aggressive path ahead for monetary policy, one that would lift interest rates higher and keep them elevated longer.The Fed raised its policy interest rate by three-quarters of a percentage point, boosting it to a range of 3 to 3.25 percent. That’s a significant jump from as recently as March, when the federal funds rate was set at near-zero, and the increases since then have made for the Fed’s fastest policy adjustment since the 1980s.Even more notably, policymakers predicted on Wednesday that they would raise borrowing costs to 4.4 percent by the end of the year and forecast markedly higher interest rates in the years to come than they had previously expected. Jerome H. Powell, the Fed chair, warned that those moves would be painful for the U.S. economy — but said curbing growth to contain price increases was essential.“We have got to get inflation behind us,” Mr. Powell said during his post-meeting news conference. “I wish there were a painless way to do that; there isn’t.”Together, the Fed’s stark projections and the Fed chair’s comments amounted to a declaration: The central bank is determined to crush inflation, even if doing so comes at a cost to the economy in the near term. That message got through to markets, which slumped in reaction to the news, with the S&P 500 index closing down 1.7 percent.“We want to act aggressively now, and get this job done, and keep at it until its done,” Mr. Powell explained.His stern remarks reflect a challenging reality for the Fed. Inflation has been stubbornly rapid, and it is proving difficult to wrestle back under control.Prices continue to increase at more than three times the central bank’s target rate of 2 percent, making everyday life hard to afford as everything from rent to food to household goods continues to grow more expensive. The jump in inflation, which is being felt globally, stems partly from supply chain disruptions caused by the pandemic and war in Ukraine. But the price pressures also come from sustained consumer demand, which has allowed companies to charge more without losing customers.In fact, people have continued to buy cars, retail goods and dinners out even as the central bank has begun to sharply raise interest rates. Companies have continued to rake in big profits while hiring at a rapid clip, lifting wages as they compete for scarce workers — and sending prices relentlessly higher.The Fed is trying to change that, a statement the central bank delivered clearly on Wednesday.“It’s consistent with the message that inflation is public enemy No. 1: They have to keep going,” said Priya Misra, head of global rates research at T.D. Securities.What the Fed’s Rate Increases Mean for YouCard 1 of 4A toll on borrowers. More
The president is trying once again to accentuate the positives in the recovery from recession, but stubbornly high prices are complicating the message.The Consumer Price Index report for August showed inflation had not cooled as the administration had hoped and Americans had lost buying power over the last year as prices rose faster than wages.Sarah Silbiger for The New York TimesWASHINGTON — President Biden gathered with top Democrats at the White House on Tuesday to celebrate their inflation fight at an inopportune moment, as a sobering new report showed just how far the economy still has to go to bring soaring consumer prices under control.The Consumer Price Index report for August contained a large dose of unwelcome news for the president, who has sought to defuse Republican attacks over rising prices in the run-up to November’s midterm elections. It showed that inflation had not cooled as White House economists and other forecasters had hoped, and that workers had lost buying power over the last year as prices increased faster than wages.Another report, from the Census Bureau, showed that the typical American household saw its inflation-adjusted income fall slightly in 2021 from 2020. Perhaps more troubling for a president who has promised to close the gap between the very wealthy and the middle class, it showed that income inequality increased last year for the first time in a decade.Those developments challenged Mr. Biden’s renewed efforts to reframe the economy as a winning issue for him and his party before the midterms — though the president seemed unfazed.Mr. Biden welcomed thousands of supporters to the White House lawn to toast a new law that he says will help reduce the cost of electricity, prescription drugs and other staples of American life.The event was essentially a rally for the so-called Inflation Reduction Act, which raised taxes on large corporations, targeted nearly $400 billion in spending and tax incentives to reduce the fossil fuel emissions driving climate change, and took steps to reduce prescription drug costs for seniors on Medicare and premium costs for Americans who buy health insurance through the Affordable Care Act.Mr. Biden called the law “the single most important legislation passed in the Congress to combat inflation and one of the most significant laws in our nation’s history.”“There’s an extraordinary story being written in America today by this administration,” Mr. Biden said, adding, “This bill cut costs for families, helped reduce inflation at the kitchen table.”On Wednesday, Mr. Biden will head to the Detroit auto show, where he will champion his policies to bolster manufacturing and low-emission sources of energy.But the country’s economic reality remains more muddled than Mr. Biden’s rosy message, as the inflation report underscored. Food prices are continuing to spike, straining lower-income families in particular. The global economy is slowing sharply, and threats remain to the American recovery if European sanctions force millions of barrels of Russian oil off the global market in the months to come.The State of the 2022 Midterm ElectionsWith the primaries winding down, both parties are starting to shift their focus to the general election on Nov. 8.Polling Warnings: Democratic Senate candidates are polling well in the same places where surveys overestimated President Biden in 2020 and Hillary Clinton in 2016.Democrats’ Dilemma: The party’s candidates have been trying to signal their independence from the White House, while not distancing themselves from President Biden’s base or agenda.Intraparty G.O.P. Fight: Ahead of New Hampshire’s primary, mainstream Republicans have been vying to stop a Trump-style 2020 election denier running for Senate.Abortion Ballot Measures: First came Kansas. Now, Michigan voters will decide whether abortion will remain legal in their state. Democrats are hoping referendums like these will drive voter turnout.A possible railroad strike could disrupt domestic supply chains. The White House press secretary, Karine Jean-Pierre, told reporters on Tuesday that the president had called union and company leaders on Monday in an attempt to broker an agreement to avert the strike.Most important — and perhaps most damaging for Mr. Biden and Democrats — Americans’ wages have struggled to keep pace with fast-rising prices, an uncomfortable truth for a president who promised to make real wage gains a centerpiece of his economic program. Inflation-adjusted average hourly earnings ticked up across the economy in August, the Labor Department said on Tuesday, but they remain down nearly 3 percent from a year ago.Republicans were quick to criticize Mr. Biden after the report on Tuesday. “Every day, Americans endure Biden’s economic crisis,” said Representative Blaine Luetkemeyer of Missouri, the top Republican on the Small Business Committee. “The Democrats’ inflation continues to drive up costs and leads more and more small businesses and families questioning their future.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-ok2gjs{font-size:17px;font-weight:300;line-height:25px;}.css-ok2gjs a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.Mr. Biden and his aides have celebrated falling gasoline prices on a daily basis throughout the summer. Those decreasing prices have helped inflation moderate from its high point this year, though not enough to offset rising rent, food and other costs last month.Even as he acknowledges the pain of rapid price increases across the economy, Mr. Biden has claimed progress in the fight against inflation, including with the signing last month of the energy, health care and tax bill that Democrats called the Inflation Reduction Act. On Tuesday morning, he sought to put a positive shine on the August data, saying in a statement issued by the White House that it was a sign of “more progress” in bringing down inflation.At his celebration on Tuesday afternoon, Mr. Biden barely mentioned the word “inflation.” Instead, he talked about reducing medical and energy costs — and, to a much larger extent, about the law’s efforts to combat climate change.Near the end of the speech, he gave a strident defense of his administration’s economic record, including strong job creation, record small-business formation and a rebound of the manufacturing sector.“And guess what?” Mr. Biden said. “For all the criticism I got and the help you gave me for gas prices bringing — they’re down more than $1.30 a gallon since the start of the summer. We’re making progress. We’re getting other prices down as well. We have more to do. But we’re getting there.”Recent weeks have brought signs of hope for administration officials, among both consumers and companies. The National Federation of Independent Business reported on Tuesday that its Small Business Optimism Index rose in August as inflation anxiety eased, continuing a rebound from its depths this year. The Federal Reserve Bank of New York reported on Monday that consumer inflation expectations were also falling.Officials inside the administration and at the Federal Reserve say strong job growth and consumer spending this summer have put to rest fears that the country slipped into recession in the first half of the year.“What is most notable about where we are right now is the resilience of the labor market recovery, the resilience of American consumers and households, and that we are beginning to see some signs that prices may be moderating,” Brian Deese, the director of Mr. Biden’s National Economic Council, said in an interview this week.“There’s more work to do,” Mr. Deese said. “But I think that is a signal that the economic decisions that this president has made are bearing fruit.”But polls continue to show that inflation is hurting Mr. Biden and his party at a pivotal moment, as Democrats seek to retain control of the House and the Senate. High prices loom as the top issue for voters in national opinion polls, and Americans say they trust Republicans more to handle inflation and the economy overall than Democrats.On Tuesday, stock markets recorded their largest daily loss in two years, driven by investor fears of stubborn inflation pushing the Federal Reserve to raise interest rates higher and faster than many expected.Economists on Wall Street and in policy circles are debating whether the U.S. economy can achieve a so-called soft landing, with economic and job growth slowing in order to bring inflation down — but not slowing so much as to push millions of Americans out of work. Some, like the former Treasury Secretary Lawrence H. Summers, have warned that the unemployment rate will need to rise significantly to bring price growth down to historical levels.Mark Zandi, the chief economist at Moody’s Analytics, whose analyses of Mr. Biden’s policy proposals are often promoted by the White House, said on Twitter on Tuesday that “job and wage growth must sharply slow” to reduce price increases in the service sector. “This is on the Fed, which must hike rates to get job and wage growth down without pushing the economy under.”Tuesday’s inflation report, he added, “suggests that while still doable, it won’t be easy.” More
The threat to Europe’s industrial might and living standards is particularly acute as policymakers race to decouple the continent from Russia’s power sources.Russia’s invasion of Ukraine and the continuing effects of the pandemic have hobbled countries around the globe, but the relentless series of crises has hit Europe the hardest, causing the steepest jump in energy prices, some of the highest inflation rates and the biggest risk of recession.The fallout from the war is menacing the continent with what some fear could become its most challenging economic and financial crisis in decades.While growth is slowing worldwide, “in Europe it’s altogether more serious because it’s driven by a more fundamental deterioration,” said Neil Shearing, group chief economist at Capital Economics. Real incomes and living standards are falling, he added. “Europe and Britain are just worse off.”Several countries, including Germany, the region’s largest economy, built up a decades-long dependence on Russian energy. The eightfold increase in natural gas prices since the war began presents a historic threat to Europe’s industrial might, living standards, and social peace and cohesion. Plans for factory closings, rolling blackouts and rationing are being drawn up in case of severe shortages this winter.The risk of sinking incomes, growing inequality and rising social tensions could lead “not only to a fractured society but a fractured world,” said Ian Goldin, a professor of globalization and development at Oxford University. “We haven’t faced anything like this since the 1970s, and it’s not ending soon.”Other regions of the world are also being squeezed, although some of the causes — and prospects — differ.Gazprom, Russia’s state-owned energy company, said this week that it would not resume the flow of natural gas through its Nord Stream 1 pipeline until Europe lifted Ukraine-related sanctions.Hannibal Hanschke/EPA, via ShutterstockHigher interest rates, which are being deployed aggressively to quell inflation, are trimming consumer spending and growth in the United States. Still, the American labor market remains strong, and the economy is moving forward.China, a powerful engine of global growth and a major market for European exports like cars, machinery and food, is facing its own set of problems. Beijing’s policy of continuing to freeze all activity during Covid-19 outbreaks has repeatedly paralyzed large swaths of the economy and added to worldwide supply chain disruptions. In the last few weeks alone, dozens of cities and more than 300 million people have been under full or partial lockdowns. Extreme heat and drought have hamstrung hydropower generation, forcing additional factory closings and rolling blackouts.A troubled real estate market has added to the economic instability in China. Hundreds of thousands of people are refusing to pay their mortgages because they have lost confidence that developers will ever deliver their unfinished housing units. Trade with the rest of the world took a hit in August, and overall economic growth, although likely to outrun rates in the United States and Europe, looks as if it will slip to its slowest pace in a decade this year. The prospect has prompted China’s central bank to cut interest rates in hopes of stimulating the economy.Understand the Decline in U.S. Gas PricesCard 1 of 5Understand the Decline in U.S. Gas PricesGas prices are falling. More
The monthly employment report suggested that the Federal Reserve might be able to tame inflation without causing a recession.Monthly change in jobs More
Americans’ incomes rose more slowly last month — but, for once, those gains weren’t swallowed up by higher prices.Personal income, after taxes, rose 0.2 percent in July, the Commerce Department said Friday. That was slower than the 0.7 percent gain in June. But while the gains in June were more than offset by sharply higher prices, in July, Americans saw their inflation-adjusted incomes rise 0.3 percent as lower gas prices led to a respite from inflation.Consumer spending also cooled in July, as Americans pulled back on purchases of goods. Overall consumer spending rose 0.1 percent, the weakest showing since a decline in December and down from a 1 percent gain in June. Spending on services, which has rebounded sharply as the pandemic has ebbed, continued to rise, but more slowly than in prior months.The moderation in spending could be welcome news for policymakers at the Federal Reserve, who have been trying to tamp down demand without pushing the recovery into reverse.Income and spending, adjusted for inflation, are also among the indicators that economists at the National Bureau of Economic Research use to determine when a recession has begun. The gains in July are the latest evidence that the economy, though slowing, is not in a recession.Economists warn that the reprieve from inflation may prove temporary. But they say households should be able to keep spending as long as employers keep hiring and pay keeps rising. Income from wages and salaries rose 0.8 percent in July, the biggest gain since February. The Labor Department will provide data on employment and wages for August at the end of next week.Diane Swonk, chief economist at the accounting firm KPMG, said the underlying strength of the consumer economy reflected a handoff from the government, which helped support households and businesses with record spending earlier in the pandemic, to the private sector, which has roared back over the past year and a half.“We have seen the private sector really pick up that baton, which has been amazing,” she said. More
