June 18, 2019

The Big Question for the Fed This Week: Did We Make a Mistake?

In effect, if you believed that the interest rate target was set correctly a couple of months ago, as Fed officials did, it is hard to believe that is still the case given the combination of falling longer-term interest rates, inflation expectations and softer growth in job creation and wages.

The consensus view of savvy Fed watchers is that the central bank won’t actually make a major reversal in policy this week, but will signal openness to doing so at future meetings. And Jerome Powell, the Fed chairman, and his colleagues may first want more information — particularly from a potential meeting between the presidents of China and the United States at the G20 summit later in the month, which could calm trade tensions.

But the nature of economic policy is that you’re always making it in a fog. And there is cost to waiting, too — a message that the Fed just isn’t too concerned by the signs of an economic slump that are evident in markets and some economic data, like recent surveys of factory activity and the most recent employment report.

You don’t have to be a psychologist to think that some Fed officials may be reluctant to cut rates because it would either look as if they were concluding that President Trump was correct in his attacks on their interest rate increase in December or bending to his demands for rate cuts.

Mr. Powell has told colleagues they need to ensure they don’t make bad policy just to try to prove their political independence — that they need to make the same decisions they would make absent presidential pressure. The coming meeting will be a test of that resolve.

There are solid arguments against cutting rates just now, involving financial stability. In particular, if the Fed reacts too quickly to the tribulations of financial markets, it could encourage excessive risk-taking in ways that could ultimately fuel a boom and bust.

On the other hand, if Fed officials refrain from cutting rates this summer and the economy falters, they are almost certainly likely to end up with even lower rates for longer in trying to repair the damage. If you believe low rates inevitably fuel financial excess, a small rate cut now may be better than big rate cuts later.

Article source: https://www.nytimes.com/2019/06/17/upshot/fed-big-question-rate-cuts.html?emc=rss&partner=rss

Volkswagen Factory Workers in Tennessee Reject Union

The publication Labor Notes obtained a recording of a recent all-hands meeting in which Mr. Fischer, the chief executive, appeared to blame a union for the demise of a Volkswagen plant in Pennsylvania in the 1980s.

Mr. Fischer recalled that production at the Pennsylvania plant had started in the first half of 1978 and that by October of that year, there was a strike. “Volkswagen management never was able to really run the plant until it was closed in 1988,” he said on the recording.

In 2015, a small group of maintenance employees at the Chattanooga plant voted to unionize, but Volkswagen refused to bargain with them, leading to litigation.

When the U.A.W. filed for an election with the National Labor Relations Board this year, the company objected on the grounds that the case involving that smaller union was still pending, forcing the union to resubmit its petition for a vote after it withdrew the earlier case.

Workers and organizers also took a more conventional approach this time around, emphasizing the benefits of a union on issues like safety and scheduling.

“In 2014, there was a strong focus on how unionization was a necessary legal precondition for implementing VW’s ‘co-determination’ management system,” said Daniel Cornfield, a sociologist who studies labor at Vanderbilt University in Nashville. “In 2019, the pro-union campaign is much more focused on traditional U.S. organizing issues.”

Mr. Sexton said he and other workers were becoming increasingly upset because production teams were understaffed, leading to greater stress on workers and more injuries. He said the plant’s medical team was often unsympathetic, pronouncing injuries the result of “pre-existing conditions” and sending workers back to the line.

Article source: https://www.nytimes.com/2019/06/14/business/economy/volkswagen-chattanooga-uaw-union.html?emc=rss&partner=rss

In the Race for Factory Jobs Under Trump, the Midwest Isn’t Winning

The list of counties that added the most manufacturing jobs in 2017 and 2018 highlights that divide. It is led by Harris County, Tex., which includes Houston and factories that supply the oil and gas industry. It also includes Alameda County, Calif., in the Bay Area, and Storey County, Nev., east of Reno, which are home to Tesla plants that added jobs after Mr. Trump took office.

Only two of the top 10 counties are in the industrial Midwest: Macomb County, Mich., near Detroit, and Peoria County in western Illinois.

  • Harris County, Tex. 11,592 jobs

  • Storey County, Nev. 10,197

  • Santa Clara County, Calif. 9,909

  • Alameda County, Calif. 9,855

  • Maricopa County, Ariz. 9,674

  • Peoria County, Ill. 8,429

  • Tulsa County, Okla. 8,381

  • Tarrant County, Tex. 6,327

  • Orange County, Calif. 6,242

  • Macomb County, Mich. 5,991

Source: Economic Innovation Group and Labor Department

Nearly half the job gains were in the most prosperous quintile of counties in America, according to the Economic Innovation Group, even though those counties accounted for just 40 percent of the nation’s factory jobs before Mr. Trump took office. And in an indication that many of the gains may be part of long-running economic trends, two-thirds of the new positions were in counties that added jobs from 2010 through 2016.

Still, there are some signs of hope for the counties that the group rates as the most economically distressed quintile. Collectively, they lost factory jobs throughout the Obama administration, but they added more than 20,000 during Mr. Trump’s first two years, with the biggest gains in the Southeast, including Tennessee, the Carolinas, Arkansas and Georgia.

“The manufacturing sector is steadily realigning after the shocks of the early part of this century,” said John Lettieri, the president of the Economic Innovation Group, which came up with the idea for the opportunity zone program. “The West is emerging as a new growth engine for the sector, and manufacturing’s rebound is finally reaching many distressed areas of the country.”

He added, “These gains are real but still fragile.”

The fragility is a result of a global manufacturing slowdown, which many analysts link to Mr. Trump’s tariffs on imports from China — among other products — and the escalation of trade tensions with countries around the world.

Article source: https://www.nytimes.com/2019/06/13/business/economy/trump-manufacturing-jobs.html?emc=rss&partner=rss

Boost in Factory Jobs Under Trump Favors Sunny Frontiers Over Ailing Hubs

The list of counties that added the most manufacturing jobs in 2017 and 2018 highlights that divide. It is led by Harris County, Tex., which includes Houston and factories that supply the oil and gas industry. It also includes Alameda County, Calif., in the Bay Area, and Storey County, Nev., east of Reno, which are home to Tesla plants that added jobs after Mr. Trump took office.

Only two of the top 10 counties are in the industrial Midwest: Macomb County, Mich., near Detroit, and Peoria County in western Illinois.

  • Harris County, Tex. 11,592 jobs

  • Storey County, Nev. 10,197

  • Santa Clara County, Calif. 9,909

  • Alameda County, Calif. 9,855

  • Maricopa County, Ariz. 9,674

  • Peoria County, Ill. 8,429

  • Tulsa County, Okla. 8,381

  • Tarrant County, Tex. 6,327

  • Orange County, Calif. 6,242

  • Macomb County, Mich. 5,991

Source: Economic Innovation Group and Labor Department

Nearly half the job gains were in the most prosperous quintile of counties in America, according to the Economic Innovation Group, even though those counties accounted for just 40 percent of the nation’s factory jobs before Mr. Trump took office. And in an indication that many of the gains may be part of long-running economic trends, two-thirds of the new positions were in counties that added jobs from 2010 through 2016.

Still, there are some signs of hope for the counties that the group rates as the most economically distressed quintile. Collectively, they lost factory jobs throughout the Obama administration, but they added more than 20,000 during Mr. Trump’s first two years, with the biggest gains in the Southeast, including Tennessee, the Carolinas, Arkansas and Georgia.

“The manufacturing sector is steadily realigning after the shocks of the early part of this century,” said John Lettieri, the president of the Economic Innovation Group, which came up with the idea for the opportunity zone program. “The West is emerging as a new growth engine for the sector, and manufacturing’s rebound is finally reaching many distressed areas of the country.”

He added, “These gains are real but still fragile.”

The fragility is a result of a global manufacturing slowdown, which many analysts link to Mr. Trump’s tariffs on imports from China — among other products — and the escalation of trade tensions with countries around the world.

Article source: https://www.nytimes.com/2019/06/13/business/economy/trump-manufacturing-jobs.html?emc=rss&partner=rss

Martin Feldstein, 79, a Chief Economist Under Reagan, Dies

“In temperament, timing and strategy, Marty Feldstein — as he’s widely known — is proving to be the odd man out in the economic policy ranks of the Reagan administration,” the economics reporter Peter T. Kilborn wrote in The Times in 1983, adding, “He has shown little clout even in areas, like Social Security policy, where his academic credentials were strongest and his timing superb.”

Lawrence A. Kudlow, who had been economic policy director in Reagan’s Office of Management and Budget and is now an economic adviser to President Trump, was quoted as saying of Professor Feldstein, “He has failed at making the transition from academic economist to political economist.”

But on his return to Harvard in 1984, in accordance with its strict two-year limit on leaves, he won praise from The Times in an editorial.

“Of his dozen predecessors, some may have been brighter, or better at Washington politics,” the editorial said, “but none were more willing to stand up and speak out. He’s served the country well.”

Martin Stuart Feldstein was born on Nov. 25, 1939, in the Bronx to Meyer and Esther (Gevarter) Feldstein. His father, who was known as Mac, was a lawyer. The family later moved to Rockville Centre on Long Island, where Mr. Feldstein attended South Side High School and won a scholarship to Harvard.

He graduated from Harvard in 1961 and went on to earn a Ph.D. from Oxford University, where he received attention for his papers on the British public health service. While in England he met his future wife, Kathleen Foley, who is also an economist.

Article source: https://www.nytimes.com/2019/06/12/us/martin-feldstein-dead.html?emc=rss&partner=rss

Trump Isn’t Alone. These Millennials on the Left Want Low Interest Rates, Too.

Employ America won’t oppose every pick Mr. Trump makes for the Fed: Mr. Bell often praises Richard H. Clarida, the Fed’s vice chair, who was nominated by Mr. Trump. Nor is the group anti-Fed. Mr. Amarnath worked at the New York branch after college and has either participated in or coached Fed Challenge, in which team members role-play real life policymakers, since he was 15. He is something of an organizational enthusiast.

But Mr. Amarnath, 27, left his job as a hedge fund economist to help start the group because he thinks the Fed could use a push toward deeper self-reflection. Policymakers started saying the economy was near full employment in 2016, for instance, but businesses have continued to hire steadily since then.

“There are always priors to challenge,” said Mr. Amarnath, a Columbia graduate who studied economics. “These are costly errors. You say, ‘We’re at maximum employment,’ and then eight million jobs show up.”

He recently published an article on Medium suggesting that the Fed should set policy with an eye toward overall labor income, rather than inflation, when the economy is shaky. Such an approach would result in lower policy rates for longer and, in theory, faster labor market healing. More recently, he has published a “quick and dirty case” for a .50 percentage point rate cut at the Fed’s June meeting, which would be a more aggressive and earlier move than most economists and investors expect.

Ms. Stiens, 33, manages Employ America’s operations and will help with hiring if the organization’s funding is extended.

If it is a little brazen for three people with a trial grant to try to influence a 105-year-old central bank that employs hundreds of Ph.D. economists, at least there is some precedent. Fed Up, started in 2014 and also funded by Open Philanthropy, brought protesters in green shirts emblazoned with the words “What Recovery?” to high-profile events like the Fed’s annual meeting in Jackson Hole, Wyo., to pressure policymakers to maintain low rates.

At a time when groups on the right were calling loudly for rate increases, the Fed Up organizers landed meetings with Fed officials and drew media attention. Mr. Bell consulted with Fed Up and admired the group’s work, but wanted to create a wonkier complement to its grass-roots outreach.

Article source: https://www.nytimes.com/2019/06/12/business/economy/federal-reserve-rates-employ-america.html?emc=rss&partner=rss

4 Questions Hovering Over the Raytheon-United Technologies Deal to Create a Defense Giant

Some economists believe that a big increase in mergers and acquisitions can suggest that an expansion may be ending. Companies may be more likely to seek partners when they are struggling to increase profits and sales.

So far this year, companies have announced mergers and acquisitions totaling $1 trillion, up 14 percent from the same period last year, according to data from Dealogic.

“What consolidation does, which is what MA is all about, is remove a source of competition, and it is a wonderful way of improving your pricing power position,” said David Rosenberg, chief economist at Gluskin Sheff, an investment firm based in Toronto.

The companies contend that because they are not currently in the same businesses, the merger will not increase the combined firm’s market position in, say, jet engines or missiles. Just 1 percent of the companies’ sales overlap, Mr. Hayes said Monday on CNBC.

“There is nothing anticompetitive about bringing these companies together,” he said.

But antitrust experts say Mr. Trump is right to be worried.

Deals involving businesses that are closely related to each other can strengthen the combined company’s market power. Raytheon and United Technologies have suggested that the deal would create “highly complementary technology offerings,” something that critics of big mergers consider to be a red flag.

“They could use the enhanced footprint and enhanced market power to potentially make it harder for their rivals to compete,” said Diana L. Moss, president of the American Antitrust Institute, a Washington group that advocates stronger antitrust enforcement. “I would imagine that Rolls-Royce, a rival, would be somewhat agitated.”

Article source: https://www.nytimes.com/2019/06/11/business/economy/raytheon-united-technologies-merger.html?emc=rss&partner=rss

Trump Renews Attacks on Fed, Putting Central Bank in a Bind

The president has been particularly critical of the Fed’s policies in the context of his trade war. Mr. Trump has said that China devalues its currency, making its goods cheaper to buy and putting the United States at a disadvantage.

“They devalue their currency,” Mr. Trump said. “They have for years. It’s put them at a tremendous competitive advantage and we don’t have that advantage because we have a Fed that doesn’t lower interest rates. We should be entitled to have a fair playing field, but even without a fair playing field — because our Fed is very, very disruptive to us — even without a fair playing field we are winning.”

Before adopting its current cautious stance, the Fed had raised rates nine times since late 2015, with four of those coming after Mr. Trump nominated Mr. Powell to lead the central bank. It has also been shrinking its large balance sheet of government-backed bonds — which it amassed in the wake of the financial crisis to help prop up the economy — though it is in the process of slowing and stopping the drawdown.

Mr. Trump seemed to blame Fed policy partly on personnel. Mr. Trump has nominated four of the Fed’s five board members in Washington, but boards at the 12 regional central banks select their leaders. In total, 13 of the 17 people sitting around the policy-setting table were not selected by the White House.

He said in the interview that the Fed had not listened to him and that “they’re not my people.” All four of the Fed governors he selected voted in favor of rate increases last year, including Mr. Powell, Richard Clarida, Randal Quarles and Michelle Bowman.

The Fed operates independently of the White House by design, so that its officials are free to make decisions that could cause short-term pain but are better for the nation’s long-term economic health.

The president’s regular attacks on the central bank break with a decades-old tradition of respecting that independence.

Article source: https://www.nytimes.com/2019/06/10/business/economy/trump-attacks-fed-interest-rates.html?emc=rss&partner=rss

China Summons Tech Giants to Warn Against Cooperating With Trump Ban

The meetings also included the semiconductor makers Arm of Britain and SK Hynix of South Korea.

Dominic Carr, a Microsoft spokesman in Seattle, declined to comment on the meeting, as did Phil Hughes, a representative for Arm in Austin, Tex., and Dave Farmer, a spokesman for Dell in Hopkinton, Mass.

Representatives for Samsung and SK Hynix didn’t respond to requests for comment.

The breakneck unraveling of the world’s most important trade relationship has left companies and governments around the world scrambling. While the dispute had already been nettlesome for Chinese-U.S. relations, the sudden ban on Huawei last month caught many by surprise, raising the stakes by striking at the heart of China’s long-term technological ambitions.

Now, each of the two superpowers appears to be crafting new economic weapons to aim at the other. What was once a fraught, but deeply enmeshed, trade relationship is threatening to break apart almost entirely, raising the specter of a new geopolitical reality in which the world’s two superpowers would compete for economic influence and try to freeze each other out of key technologies and resources.

“This is now extremely delicate because the Trump administration, through its brinkmanship tactics, has destabilized the entire relationship, commercial and otherwise,” said Scott Kennedy, a senior adviser at the Washington-based Center for Strategic and International Studies who studies Chinese economic policy.

The meetings this week were led by China’s central economic planning agency, the National Development and Reform Commission, and attended by representatives from its Ministry of Commerce and Ministry of Industry and Information Technology, who addressed their remarks to a broad range of companies that export goods to China, according to the two people familiar with the gatherings.

Article source: https://www.nytimes.com/2019/06/08/business/economy/china-huawei-trump.html?emc=rss&partner=rss

Trump Is More Vulnerable to Democratic Attacks on Trade Than You Might Think

Rather than focusing on a few discrete areas where international competitors have treated American companies unfairly and applying temporary tariffs to try to exert pressure, the Trump administration has applied open-ended tariffs on imports of nearly 7,000 different items.

The administration has also placed tariffs on “intermediate goods,” so that efforts to create jobs in one sector can mean higher costs and fewer jobs in another. The taxes on many steel and aluminum imports, for example, may be creating some jobs in those sectors while increasing costs for automakers and other American companies that use the metals.

And trading partners have been savvy about using retaliatory tariffs to punish Mr. Trump’s base, most notably on American farm products.

Combine those factors, and the trade war so far has offered more pain than it has a clear pathway to better deals for American companies and workers. Especially with China, it has often seemed that rather than seeking to achieve attainable goals, the conflict is the whole point.

Early jockeying between the Trump White House and the Democratic front-runner Joe Biden’s presidential campaign suggests that the president would, in a potential matchup, claim Mr. Biden is weak on China.

But how that will play if the trade war with China causes more evident economic pain?

The first round of tariffs against China was limited to goods purchased mainly by businesses. But in seeking to apply more pressure on China to make major overhauls, the Trump administration is taxing about $200 billion worth of imports from China at 25 percent, a list of goods that includes many consumer products like furniture and auto parts.

That went into effect in early May and, given the time it takes for container ships to go from China to the United States, is only beginning to ripple through to the costs of consumer goods.

Article source: https://www.nytimes.com/2019/06/08/upshot/trump-is-more-vulnerable-to-democratic-attacks-on-trade-than-you-might-think.html?emc=rss&partner=rss