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    Trump’s Dominance and Snowy Weather Put Iowa’s Caucus Economy on Ice

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    Even before a snowstorm brought Des Moines to a near standstill on Friday, the city felt decidedly more subdued than it usually does around the Iowa caucuses: quiet restaurants, empty streets, bartenders with little to do.The numbers confirm it: The 2024 caucuses are expected to bring less than 40 percent of the direct economic impact to the capital that the 2020 contest provided — an estimated $4.2 million, down from $11.3 million four years ago. Direct economic impact measures what visitors do, like sleeping, driving, eating and drinking.It is a striking decline that reflects, among other things, diminished media engagement in a presidential race that is less competitive than in past years, when the state has been inundated by presidential hopefuls, their campaigns and teams of journalists in hot pursuit.“Media is way down,” said Greg Edwards, the chief executive of the Greater Des Moines Convention and Visitors Bureau, which provided the numbers. “The major networks aren’t sending their major anchors like they have in the past.”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?  More

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    Mortgage Rates and Inflation Could Draw Attention to the Fed This Election

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    The Federal Reserve is poised to cut rates in 2024 while moving away from balance sheet shrinking. Yet a key event looms in the backdrop: the election.This year is set to be a big one for Federal Reserve officials: They are expecting to cut interest rates several times as inflation comes down steadily, giving them a chance to dial back a two-year-long effort to cool the economy.But 2024 is also an election year — and the Fed’s expected shift in stance could tip it into the political spotlight just as campaign season kicks into gear.By changing how much it costs to borrow money, Fed decisions help to drive the strength of the American economy. The central bank is independent from the White House — meaning that the administration has no control over or input into Fed policy. That construct exists specifically so that the Fed can use its powerful tools to secure long-term economic stability without regard to whether its policies help or hurt those running for office. Fed officials fiercely guard that autonomy and insist that politics do not factor into their decisions.That doesn’t prevent politicians from talking about the Fed. In fact, recent comments from leading candidates suggest that the central bank is likely to be a hot topic heading into November.Former President Donald J. Trump, the front-runner for the Republican nomination, spent his tenure as president jawboning the Fed to lower interest rates and, in recent months, has argued in interviews and at rallies that mortgage rates — which are closely tied to Fed policy — are too high. It’s a talking point that may play well when housing affordability is challenging many American families.Still, Mr. Trump’s history hints that he could also take the opposite tack if the Fed begins to lower rates: He spent the 2016 election blasting the Fed for keeping interest rates low, which he said was giving incumbent Democrats an advantage.President Biden has avoided talking about the Fed out of deference to the institution’s independence, something he has referenced. But he has hinted at preferring that rates not continue to rise: He recently called a positive but moderate jobs report a “sweet spot” that was “needed for stable growth and lower inflation, not encouraging the Fed to raise interest rates.”The White House did not provide an on-the-record comment.Such remarks reflect a reality that political polling makes clear: Higher prices and steep mortgage rates are weighing on economic sentiment and turning voters glum, even though inflation is now slowing and the job market has remained surprisingly strong. As those Fed-related issues resonate with Americans, the central bank is likely to remain in the spotlight.“The economy is definitely going to matter,” said Mark Spindel, chief investment officer at Potomac River Capital and co-author of a book about the politics of the Fed.Fed policymakers raised interest rates from near zero to a range of 5.25 to 5.5 percent, the highest in 22 years, between early 2022 and summer 2023. Those changes were meant to slow economic growth, which would help to put a lid on rapid inflation.But now, price pressures are easing, and Fed officials could soon begin to debate when and how much they can lower rates. Policymakers projected last month that they could cut borrowing costs three times this year, to about 4.6 percent, and investors think rates could fall even further, to about 3.9 percent by the end of the year.Officials have also been shrinking their big balance sheet of bond holdings since 2022 — a process that can push longer-term interest rates up at the margin, taking some vim out of markets and economic growth. But officials have signaled in recent minutes that they might soon discuss when to move away from that process.Already, the mortgage costs that Mr. Trump has been referring to have begun to ease as investors anticipate lower rates: 30-year rates peaked at 7.8 percent in late October, and are now just above 6.5 percent.While the Fed can explain its ongoing shift based on economics — inflation has come down quickly, and the Fed wants to avoid overdoing it and causing a recession — it could leave central bankers adjusting policy at a critical political juncture.Jerome H. Powell, the Fed chair, was nominated to the role by former President Donald J. Trump, who quickly soured on Mr. Powell, calling him an “enemy.”Pete Marovich for The New York TimesFormer and current Fed officials insist that the election will not really matter. Policymakers try to ignore politics when they are making interest rate decisions, and the Fed has changed rates in other recent election years, including at the onset of the pandemic in 2020.“I don’t think politics enters the debate very much at the Fed,” said James Bullard, who was president of the Federal Reserve Bank of St. Louis until last year. “The Fed reacts the same way in election years as it does in non-election years.”But some on Wall Street think that cutting interest rates just before an election could put the central bank in a tough spot optically — especially if the moves occurred closer to November.“It will be increasingly uncomfortable,” said Laura Rosner-Warburton, senior economist and founding partner at MacroPolicy Perspectives, an economic research firm. Cutting rates sooner rather than later could help with those optics, several analysts said.And Mr. Spindel predicted that Mr. Trump was likely to continue talking about the Fed on the campaign trail — potentially amplifying any discomfort.Since the early 1990s, presidential administrations have generally avoided talking about Fed policy. But Mr. Trump upended that tradition both as a candidate and then later when he was in office, regularly haranguing Jerome H. Powell, the Fed chair, on social media and in interviews. He called Fed officials “boneheads,” and Mr. Powell an “enemy.”Mr. Trump had nominated Mr. Powell to replace Janet L. Yellen as Fed chair, but it did not take long for him to sour on his choice. Mr. Biden renominated Mr. Powell to a second term. Mr. Trump has already said he would not reappoint Mr. Powell as Fed chair if he was re-elected.Of course, this would not be the first time the Fed adjusted policy against a politically fraught backdrop. There was concern among some economists that rate cuts in 2019, when the Trump administration was pushing for them, would look like caving in. Central bankers lowered rates that year anyway.“We never take into account political considerations,” Mr. Powell said back then. “We also don’t conduct monetary policy in order to prove our independence.”Economists said the trick to lowering rates in an election year would be clear communication: By explaining what they are doing and why, central bankers may be able to defray concerns that any decision to move or not to move is politically motivated.“The key thing is to keep it legible and legitimate,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. “Why are they doing what they are doing?” More

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    World Bank Warns of Energy Price Surge if Mideast War Spreads

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    A new economic report predicted a year of weak growth and said the world faced a decade of “wasted opportunity.”The global economy is at risk of a “wasted” decade and the weakest stretch of growth in 30 years, the World Bank warned on Tuesday, saying a sluggish recovery from the pandemic and crippling wars in Ukraine and the Middle East are expected to weigh heavily on output.In its semiannual Global Economic Prospects report, the World Bank projected that the growth in world output will slow further in 2024, declining to 2.4 percent from 2.6 percent. Although the global economy has been surprisingly resilient, the report warned that its forecasts were subject to heightened uncertainty because of the two wars, a diminished Chinese economy and the increasing risks of natural disasters caused by global warming.The converging crises in recent years have put the world economy on track for the weakest half-decade in 30 years.“Without a major course correction, the 2020s will go down as a decade of wasted opportunity,” said Indermit Gill, the World Bank Group’s chief economist.Global growth is projected to slow for the third straight year in 2024. Developing countries are bearing the brunt of the slowdown, with high borrowing costs and anemic trade volumes weighing on their economies.Although policymakers have made progress in bringing inflation down from its 2022 high, the war in Gaza between Israel and Hamas is threatening to become a broader conflict that could spur a new bout of price increases by causing the cost of oil and food to spike.“The recent conflict in the Middle East, coming on top of the Russian Federation’s invasion of Ukraine, has heightened geopolitical risks,” the report said. “Conflict escalation could lead to surging energy prices, with broader implications for global activity and inflation.”The recent drone and missile attacks in the Red Sea by the Iranian-backed Houthi militia have already affected international commerce by pushing up oil prices and freight and insurance rates while diverting maritime traffic to a much longer and costlier route around Africa.Economists at Capital Economics wrote in a report this month that the redirecting of trade ships away from the Red Sea is unlikely to lead to a resurgence of global inflation, but they suggested that if the war became a broader regional conflict it could pose inflationary risks.The disruptions to shipping routes follow a year in which, other than during worldwide recessions, global trade growth was the slowest in the past 50 years, according to the World Bank.If the conflict in the Middle East does not widen, the World Bank expects that global oil prices will edge lower this year as growth weakens and production of oil increases.Beyond the ongoing wars, signs of fragility in the Chinese economy also remain a worry. World Bank economists pointed to lingering weakness in China’s property sector and lackluster consumer spending as evidence that the world’s second-largest economy will continue to underperform this year. They suggested that could pose headwinds for some of China’s trading partners in Asia.Chinese growth is expected to slow to 4.5 percent this year from 5.2 percent in 2023. Outside the pandemic-induced downturn, that would be China’s slowest expansion in 30 years.Europe and the United States are also poised for another year of weak output in 2024.The World Bank projects that economic growth in the euro area will rise to 0.7 percent in 2024 from 0.4 percent in 2023. Despite easing inflation and rising wages, tight credit conditions are expected to constrain economic activity.Growth in the United States is expected to slow to 1.6 percent this year from 2.5 percent in 2023. The World Bank attributes the slowdown to elevated interest rates — which are at their highest level in 22 years — and a pullback in government spending. Businesses are expected to be cautious about investing because of economic and political uncertainty, including around the 2024 election.Despite such slow growth, Biden administration officials say they deserve credit for corralling inflation while keeping the economy afloat.“I think we’ve made tremendous progress,” Treasury Secretary Janet L. Yellen told reporters on Monday. “It’s very unusual to have a period in which inflation declines as much it has while the labor market remains strong.”She added: “But that’s what we’re seeing, and that’s why I say we’re enjoying a soft landing.” More

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    U.S. Added 216,000 Jobs in December, Outpacing Forecasts

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    Hiring has throttled back from 2021 and 2022, but last year’s growth was still impressive by longer-term standards.The U.S. labor market ended 2023 with a bang, gaining more jobs than experts had expected and buoying hopes that the economy can settle into a solid, sustainable level of growth rather than fall into a recession.Employers added 216,000 jobs in December on a seasonally adjusted basis, the Labor Department reported on Friday. The unemployment rate was unchanged at 3.7 percent.Although hiring has slowed in recent months, layoffs remain near record lows. The durability of both hiring and wage gains is all the more remarkable in light of the Federal Reserve’s aggressive series of interest rate increases in the past couple of years. But a range of analysts warns that the coast is not yet clear and says the effects of those higher rates will take time to filter through business activity.“The real test for the labor market begins now, and so far it is passing the test,” said Daniel Altman, the chief economist at Instawork, a digital platform that connects employers with job seekers.Financial commentary in the past year has been dominated by dueling narratives about the economy. Most economists warned that the Fed’s driving up borrowing costs at a historically rapid pace would send the economy into a downturn. Heading into 2023, over 90 percent of chief executives surveyed by the Conference Board said they were expecting a recession. And many leading analysts thought that price increases could soften only if workers experienced significant job losses.But the resilience of the overall economy and consumer spending has so far defied that outlook: In June 2022, inflation was roughly 9 percent. Inflation has since tumbled to 3 percent while the unemployment rate has been largely unmoved.The economy gained 2.7 million jobs in 2023.Annual change in jobs More

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    U.S. Awards Chip Supplier $162 Million to Bolster Critical Industries

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    The Biden administration said its second grant under a new program would help Microchip Technology expand its facilities in Oregon and Colorado.The Biden administration on Thursday announced plans to provide $162 million in federal grants to Microchip Technology, an Arizona-based semiconductor company that supplies the automotive, defense and other industries.The agreement is the second award announced under a new program intended to help ensure that American companies that rely on semiconductors have a stable supply. Last month, the Biden administration announced a $35 million grant for BAE Systems, a defense contractor.The investment will enable Microchip to increase its production of semiconductors that are used in cars, airplanes, appliances, medical devices and military products. The administration said it expected the award to create more than 700 jobs in construction and manufacturing.“Today’s announcement with Microchip is a meaningful step in our efforts to bolster the supply chain for legacy semiconductors that are in everything from cars to washing machines to missiles,” Commerce Secretary Gina M. Raimondo said in a statement.Microchip plans to use $90 million to modernize and expand a facility in Colorado Springs and $72 million to expand a facility in Gresham, Ore. The administration said the funding would help Microchip triple its output at the two sites and decrease the company’s reliance on foreign facilities to help make its products.The company’s chips aren’t cutting-edge but are key components of nearly every military and space program. Microchip is one of the largest suppliers of semiconductors to the defense industrial base and a designated trusted foundry for the military. It also plays a crucial role in industries that are important for the national economy, U.S. officials said.That role became more obvious during the pandemic, when a global chip shortage cast a spotlight on domestic suppliers like Microchip. With foreign chip factories shut down to help contain the virus, automakers and other companies scrambled to secure supplies. As a result, demand for Microchip’s products surged.Those shortages also helped motivate lawmakers to pull together a funding bill aimed at shoring up American manufacturing and reduce reliance on foreign chips. The 2022 CHIPS and Science Act gave the Commerce Department $53 billion to invest in the semiconductor industry, including $39 billion for federal grants to encourage chip companies to set up U.S. facilities.The Commerce Department is expected to begin announcing larger awards in the coming months for major chip fabrication facilities owned by companies like Intel and Taiwan Semiconductor Manufacturing Company, known as TSMC.Microchip previously announced plans to increase its capacity in both Oregon and Colorado, but the government funding would be used to expand those enhancements and bring more production back to the United States, officials said. According to its filings, Microchip relies on outside facilities to make a significant proportion of its products — roughly 63 percent of its net sales in 2023 — a relatively common practice in the industry.While attention has focused on ensuring that U.S. facilities can manufacture some of the world’s most advanced chips, there are growing concerns about Chinese investments in less advanced semiconductors, also known as legacy chips, which help power cars, computers, missiles and dishwashers.U.S. officials are questioning whether such investments could increase the United States’ reliance on China or allow Chinese firms to undercut competitors. The Commerce Department has said it plans to begin a survey this month to identify how U.S. companies are getting their legacy chips and reduce security risks linked to China.The deal announced Thursday is a nonbinding preliminary agreement. The Commerce Department will carry out due diligence on the project before reaching the award’s final terms.The department said it had received more than 570 statements of interest and more than 170 pre-applications, full applications and concept plans from companies and organizations interested in the funding.Don Clark More

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    Auto Sales Are Expected to Slow After a Strong 2023

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    Automakers sold more cars in 2023 than a year ago as supply chain chaos ended, but sales are now under pressure from higher interest rates.After enjoying a strong rebound in sales in 2023, the auto industry appears headed for slower growth this year as consumers struggle with elevated interest rates and high prices for new cars and light trucks.Edmunds, a market researcher, expects the industry to sell 15.7 million vehicles this year. That would amount to a modest increase from the 15.5 million sold last year, when sales jumped 12 percent.“There’s definitely pent-up demand out there, because people have been holding off purchases for a while,” said Jessica Caldwell, head of insights at Edmunds. “But given the credit situation, we don’t think the industry will see a ton of growth this year.”Since the coronavirus pandemic, automakers have struggled with shortages of critical parts that have prevented them from producing as many vehicles as consumers wanted to buy. In 2023, the shortages, especially for computer chips, finally eased, allowing production to return to more normal levels.But over the past year, the Federal Reserve has significantly raised interest rates, which has pushed up costs considerably for car buyers.For years, many people took advantage of zero-percent loans to buy vehicles, even as prices climbed. But such deals, offered by automakers to move inventory, have nearly disappeared in the wake of the Fed’s rate hikes. In the fourth quarter of 2023, new-vehicle sales with zero-percent financing accounted for just 2.3 percent of all sales, according to Edmunds.Monthly payments are at near-record highs. In the fourth quarter, the average monthly payment on new cars was $739, up from $717 in the same period a year ago.Several automakers were hoping that a rapid rise in sales of new electric vehicles would drive the industry to gains into 2024 and 2025, but those cars and trucks haven’t taken off quite as quickly as many analysts and executives had hoped.In 2023, sales of battery-powered models in the United States topped one million vehicles for the first time, and Cox Automotive, another research firm, expects sales to reach 1.5 million this year. But General Motors, Ford Motor, Volkswagen and other manufacturers had been expecting an even faster ramp-up.But consumers have balked at the high prices of many of the newest electric models. Many drivers are also reluctant to make the switch to battery power, because they are not sure they will be able to find enough places to quickly refuel. That has forced automakers to reset their plans.G.M. had once forecast it would produce 400,000 electric vehicles by the middle of 2024 but now has given up that target, and it has delayed the production of some electric models.Ford had been aiming to have enough factory capacity by the end of 2024 to make 600,000 battery-powered vehicles a year, but it recently lowered production plans for its electric F-150 Lightning and its electric sport-utility vehicle, the Mustang Mach-E.On Wednesday, G.M. said that its sales of new vehicles in the United States jumped 14 percent last year. The company sold 2.6 million cars and light trucks in 2023, up from 2.3 million in 2022, when the chip shortage limited production.G.M. sold about 76,000 electric vehicles, up from 39,000 in 2022. But most were Chevrolet Bolts, a model that the company recently stopped making. Only about 13,000 were vehicle based on newer battery technology that G.M. had been hoping would make its electric vehicles affordable to many more car buyers.Sales for G.M. in the fourth quarter were relatively weak. They climbed just 0.3 percent from the same period a year earlier and were down 7 percent compared with the third quarter of 2023. The company said the sales of several important models were limited by a strike at some of its plants by the United Automobile Workers union.Separately, Toyota Motor, the second largest seller of cars in the United States after G.M., said its 2023 sales rose 7 percent, to 2.2 million vehicles. The company’s sales in the fourth quarter were 15.4 percent higher than in the same quarter a year ago and about 5 percent higher than in the third quarter.Stellantis, the maker of Chrysler, Ram and Jeep vehicles, said that it sold 1.5 million cars and trucks in 2023, about 1 percent less than the year before. The company plans to introduce eight new electric vehicles this year, and it aims to have battery-powered models account for half of its North American sales by the end of the decade.Honda, Hyundai and Kia also on Wednesday reported strong U.S. sales for 2023 And on Tuesday, Tesla, which dominates the electric car business in the United States, said it sold 1.8 million cars worldwide last year, up 38 percent from 2022.Ford is expected to report its sales total on Thursday. More

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    Will America’s Good News on Inflation Last?

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    One of the biggest economic surprises of 2023 was how quickly inflation faded. A dig into the details offers hints at whether it will last into 2024.Prices climbed rapidly in 2021 and 2022, straining American household budgets and chipping away at President Biden’s approval rating. But inflation cooled in late 2023, a spurt of progress that happened more quickly than economists had expected and that stoked hopes of a gentle economic landing.Now, the question is whether the good news can persist into 2024.As forecasters try to guess what will happen next, many are looking closely at where the recent slowdown has come from. The details suggest that a combination of weaker goods prices — things like apparel and used cars — and moderating costs for services including travel has helped to drive the cooldown, even as rent increases take time to fade.Taken together, the trends suggest that more disinflation could be in store, but they also hint that a few lingering risks loom. Below is a rundown of the big changes to watch.What we’re talking about when we talk about disinflation.What’s happening in America right now is what economists call “disinflation”: When you compare prices today with prices a year ago, the pace of increase has slowed notably. At their peak in the summer of 2022, consumer prices were increasing at a 9.1 percent yearly pace. As of November, it was just 3.1 percent.Still, disinflation does not mean that prices are falling outright. Price levels have generally not reversed the big run-up that happened just after the pandemic. That means things like rent, car repairs and groceries remain more expensive on paper than they were in 2019. (Wages have also been climbing, and have picked up more quickly than prices in recent months.) In short, prices are still climbing, just not as quickly.What inflation rate are officials aiming for?The Federal Reserve, which is responsible for trying to restore price stability, wants to return price increases to a slow and steady pace that is consistent with a sustainable economy over time. Like other central banks around the world, the Fed defines that as a 2 percent annual inflation rate. What caused the 2023 disinflation surprise?Inflation shocked economists in 2021 and 2022 by first shooting up sharply and then remaining elevated. But starting in mid-2023, it began to swing in the opposite direction, falling faster than widely predicted.As of the middle of last year, Fed officials expected a key measure of inflation — the Personal Consumption Expenditures measure — to end the year at 3.2 percent. As of the latest data released in November, it had instead faded to a more modest 2.6 percent. The more timely Consumer Price Index measure has also been coming down swiftly.The surprisingly quick cooldown started as travel prices began to decelerate, said Omair Sharif, founder of Inflation Insights. When it came to airfares in particular, the story was supply.Demand was still strong, but after years of limited capacity, available flights and seats had finally caught up. That combined with cheaper jet fuel to send fares lower. And while other travel-related service prices like hotel room rates jumped rapidly in 2022, they were increasing much more slowly by mid-2023.Travel inflation is returning to normalHotel price increases look much as they did before the pandemic, while airfares have recently fallen.

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    Year-over-year percentage change in Consumer Price Index categories
    Source: Bureau of Labor StatisticsBy The New York TimesThe next change that lowered inflation came from goods prices. After jumping for two years, prices for products like furniture, apparel and used cars began to climb much more slowly — or even to fall.The amount of disinflation coming from goods was surprising, said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. And, encouragingly, “it was reasonably broad-based.”Used car deflation is backUsed vehicle prices fell in 2023. New car prices have been climbing, but more slowly than in 2022.

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    Year-over-year percentage change in Consumer Price Index categories
    Source: Bureau of Labor StatisticsBy The New York TimesThe inflation relief came partly from supply improvements. For years, snarled transit routes, expensive shipping fares and a limited supply of workers had limited how many products and services companies could offer. But by late last year, shipping routes were operating normally, pilots and flight crews were in the skies, and car companies were churning out new vehicles.“The supply side is at work,” said Skanda Amarnath, executive director at the worker-focused research group Employ America.What could be the next shoe to drop?In fact, one source of long-awaited disinflation has yet to show up fully: a slowdown in rental inflation.Private-sector data tracking new rents soared early in the pandemic but then slowed sharply. Many economists think that pullback will eventually feed into official inflation data as renters renew their leases or start new ones — but the process is taking time.Housing inflation remains faster than normalRent increases and a measure that approximates the cost of owned housing are both slowing only gradually.

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    Year-over-year percentage change in Consumer Price Index categories
    Source: Bureau of Labor StatisticsBy The New York Times“We’re likely to see more moderation in rent,” said Laura Rosner-Warburton, senior economist and founding partner at MacroPolicy Perspectives. Because a bigger rent cooldown remains possible and goods price increases could keep slowing, many economists expect overall consumer price inflation to fall closer to the Fed’s goal by the end of 2024. There is even a risk that it could slip below 2 percent, some think.“It’s a scenario that deserves some discussion,” Ms. Rosner-Warburton said. “I don’t think it’s the most likely scenario, but the risks are more balanced.”What could go wrong?Of course, that does not mean Fed officials and the American economy are entirely out of the woods. Falling gas prices have been helping to pull inflation lower both overall and by feeding into other prices, like airfares. But fuel prices are notoriously fickle. If unrest in gas-producing regions causes energy costs to jump unexpectedly, stamping inflation out will become more difficult.Geopolitics also carry another inflation risk: Attacks against merchant ships in the Red Sea are messing with a key transit route for global commerce, for instance. If such problems last and worsen, they could eventually feed into higher prices for goods.And perhaps the most immediate risk is that the big inflation slowdown toward the end of 2023 could have been overstated. In recent years, end-of-year price figures have been revised up and January inflation data have come in on the warm side, partly because some companies raise prices at the beginning of the new year.“There is a bunch of choppiness coming,” Mr. Sharif said. He said he’ll closely watch a set of inflation recalculations slated for release on Feb. 9, which should give policymakers a clearer view of whether the recent slowdown has been as notable as it looks.But Mr. Sharif said the overall takeaway was that inflation looked poised to continue its moderation.That could help to pave the path for lower interest rates from the Fed, which has projected that it could lower borrowing costs several times in 2024 after raising them to the highest level in more than 22 years in a bid to cool the economy and wrestle inflation under control.“There’s not a lot of upside risk left, in my mind,” Mr. Sharif said. More

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    Holiday Spending Increased, Defying Fears of a Decline

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    While the pace of growth slowed, spending stayed strong because of robust job growth and strong wage gains.Despite lingering inflation, Americans increased their spending this holiday season, early data shows. That comes as a big relief for retailers that had spent much of the year fearing the economy would soon weaken and consumer spending would fall.Retail sales increased 3.1 percent from Nov. 1 to Dec. 24 compared with the same period a year earlier, according to data Mastercard released on Tuesday. The credit card company’s numbers are not adjusted for inflation.Spending increased across many categories, with restaurants experiencing one of the largest jumps, 7.8 percent. Apparel increased 2.4 percent, and groceries also had gains.The holiday sales figures, driven by a healthy labor market and wage gains, suggests that the economy remains strong. The Federal Reserve’s campaign to rein in high inflation by raising interest rates over the last few years has slowed the economy, but many economists believe a so-called soft landing is within reach.“What we’re seeing during this holiday season is very consistent with how we’re thinking about the economy, which is that it’s an economy that is still very much expanding,” said Michelle Meyer, Mastercard’s chief economist.Solid job growth is allowing people to spend more. And even though consumer prices have risen a lot in the last two years, wages have grown faster on the whole.“We’re now entering the period, and we’re seeing it to some extent during the holiday season, where consumers have built up real purchasing power,” Ms. Meyer said.Still spending in categories like electronics and jewelry declined this season. And the rate of growth in spending has moderated from the last couple of years. In 2022, retail sales during the holiday season increased 5.4 percent, according to the National Retail Federation. In 2021, they rose 12.7 percent, the largest percentage increase in at least 20 years. Online sales growth has also slowed in 2023, increasing 6.3 percent compared with 10.6 percent from 2021 to 2022, according to Mastercard.While the economy is strong overall, Americans are being more mindful of how they’re spending, and that discretion shaped the shopping season.Some retailers had expressed concerns in recent months that shoppers appeared glum and fearful about the economy. Walmart and Target noted that shoppers seemed to be waiting for sales before buying, a change from recent years when they spent more freely.“The caution that they’ve taken on their spend and where they’re spending has been really noticeable in the second half of the year, where a lot of customers have been affected, especially lower-income and middle-income” people, said Jessica Ramírez, a retail research analyst at Jane Hali & Associates.In a return to some of the trends that prevailed before the pandemic, many retailers and brands offered promotions. Discounts were in the 30 to 50 percent range, Ms. Ramírez said. But the discounts were more targeted this year than last because fewer companies were saddled with gluts of inventory.Retail sales increased this holiday season compared with the same period a year earlier, though at a slower pace than last year.Maansi Srivastava/The New York TimesThe categories that have faced falling sales this year — like electronics, home furnishings and toys — saw some of the biggest discounts leading up to Christmas. Those goods had enjoyed booming sales during the pandemic.Alexan Weir, a 30-year-old mother in Orlando, Fla., said she was pleased to find deals on toys when she bought Christmas gifts for her daughters this month. Among the items she bought at Target were the Asha doll, based on the main character from the Disney movie “Wish”; an Elsa doll from “Frozen”; and a Minnie Mouse kitchen set. With discounts, the items together cost about half as much as their total list prices of $200.“As a parent you’re just trying to make your kids happy. You’re not trying to break the bank,” Ms. Weir said. “I spent a little bit more this year, but at least with the few sales that I received, I can say I was not heartbroken about how much I was spending.”Barbie — whose banner year was fueled by the blockbuster movie — sold particularly well in a year when there wasn’t a breakout toy. The doll and her many accouterments have been selling well at Mary Arnold Toys, a family-owned store on Manhattan’s Upper East Side. And overall sales at the shop have been steady, said Ezra Ishayik, who has run the store for 40 years.“It looks like it is about even with last year — not better, not worse,” Mr. Ishayik said. “The economy looks good to me. It’s decent, it’s OK, people are buying. We are on the high end of the industry so we don’t see any downtrend at all.”But the past few months have been more challenging for Modi Toys.Modi, an online retailer, sells plush toys and books based on Hindu culture and usually sees two sales bumps in the fourth quarter — one in the lead up to Diwali and another around Christmas.Normally the company brings in more than $100,000 in sales in the month before Diwali, which fell on Nov. 12, but this year sales dropped into the five-figure range. That was partly because the retailer launched a product too early and then had to offer hefty discounts to spur sales — something retailers try to avoid with new merchandise.“That’s when we knew that we really were going to have a challenging holiday season,” said Avani Modi Sarkar, a founder of the company.As she wraps up the year and looks toward 2024, Ms. Sarkar is testing new digital marketing strategies, including sending personalized email newsletters to customers and closely monitoring discounts.“We’re just trying to close the gap for us and not end the year with as big of a gap as we would have,” she said. “I know what we’re capable of, and I’m trying to not only get to that level again, but surpass it.”One clear sign that shoppers are being more careful about how much they spend comes from discount retailers. In November, Burlington, an off-price retailer, and the parent company of Marshalls and T.J. Maxx said they saw comparable store sales increase 6 percent.The online retailer ThriftBooks said its sales were also up this holiday season, by more than 20 percent in November and more than 24 percent this month compared with a year ago, according to Ken Goldstein, the company’s chief executive.“This was unprecedented,” Mr. Goldstein said. “This is beyond belief in terms of the volume that we’re doing. Because we’re a value product, I think a lot of people are putting their dollars to work.” More