The Fed’s attempt to temper inflation by slowing down the economy is contributing to an already sour economic mood. Consumer confidence has been sinking all year as households shoulder the burden of higher prices, and President Biden’s approval ratings have also suffered. Both Wall Street economists and small business owners increasingly worry that a recession is possible in the next year.

That glum attitude spells trouble for Mr. Biden and Democrats as November midterm elections approach. As climbing prices weigh on voters’ wallets and minds, policymakers across the administration have been clear that helping to return inflation to a more sustainable pace is their top priority, but that doing so mainly falls to the Fed.

Economists warn that wrestling inflation lower could be a slow and painful process. Production and shipping snarls tied to the pandemic have shown early signs of easing but remain pronounced, keeping products like cars and trucks in short supply. The war in Ukraine is elevating food and fuel prices, and its trajectory is unpredictable. And consumer demand remains strong, buoyed by savings amassed during the pandemic and wages that are rising quickly, albeit not enough to fully offset inflation.

“There does seem to be considerable resilience in consumer spending,” Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said ahead of the report, explaining that he expects consumer prices to still be climbing at 7.3 percent over the year as of December.

Article source: https://www.nytimes.com/2022/06/10/business/economy/inflation-soared-again-in-may-fresh-data-showed.html

But the president’s more political aides have tended to sharply minimize that the March 2021 package, known as the American Rescue Plan, helped to goose inflation, even as they have claimed credit for strong economic growth.

“Some have a curious obsession with exaggerating impact of the Rescue Plan while ignoring the degree high inflation is global,” Gene Sperling, a senior White House adviser overseeing the implementation of the stimulus package, wrote on Twitter last week, adding that the law “has had very marginal impact on inflation.”

Brian Deese, the director of the National Economic Council, acknowledged in an interview last week that there were some disagreements among White House economic officials when it came to how to talk about and respond to inflation, but he portrayed that as a positive — and as something that is not leading to any kind of dysfunction.

“If there wasn’t healthy disagreement, debate and people feeling comfortable bringing issues and ideas to the table, then I think we would be not serving the president and the public interest well,” he said.

He also pushed back on the idea that the administration was deeply divided on the March 2021 package’s aftereffects, saying in a separate emailed comment that “there is agreement across the administration that many factors contributed to inflation, and that inflation has been driven by elevated demand and constrained supply across the globe.”

How to portray the Biden administration’s stimulus spending is far from the only challenge the White House faces. As price increases last, Democrats have grappled with how to discuss their plans to combat them.

Article source: https://www.nytimes.com/2022/06/08/business/economy/inflation-biden-administration.html

Ms. Yellen did appear to veer away from the view of some Democrats that corporate greed and profiteering was a primary reason for rising prices.

Asked by Senator Charles E. Grassley, an Iowa Republican, about whether greed was to blame, Ms. Yellen demurred.

“I guess I see the bulk of inflation as reflecting supply and demand factors,” she said, sidestepping the issue of greed.

Throughout the last year, Ms. Yellen has largely been an ardent public defender of the Biden administration’s economic agenda. She has clashed publicly at times with critics such as Lawrence H. Summers, a former Treasury secretary, who warned that too much stimulus could overheat the economy.

For months, Ms. Yellen — and many other economists — talked about inflation as “transitory,” saying rising prices were the result of supply chain problems that would dissipate, and “base effects,” which were making the monthly numbers look worse in comparison with prices that were depressed during the early days of the pandemic.

By May of last year, Ms. Yellen appeared to acknowledge that the Biden administration’s spending proposals had the potential to overheat the economy. She noted at The Atlantic’s Future Economy Summit that the policies could spur growth and that the Fed might have to step in with “modest” interest rate increases if the economy revved up too much.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” Ms. Yellen said.

Article source: https://www.nytimes.com/2022/06/07/us/politics/inflation-yellen.html

Scott Lincicome, a trade policy expert at the Cato Institute, a libertarian think tank, said that the administration’s actions seemed to be “quite the stretch of the statute.”

The trade law provision that Mr. Biden invoked allows the president to “declare an emergency to exist by reason of a state of war, or otherwise,” and during such a state of emergency to import “food, clothing, and medical, surgical, and other supplies for use in emergency relief work” duty free.

He said critics of U.S. tariffs had long proposed a “public interest” test that would allow levies to be lifted to mitigate broader economic harm, but Congress had never approved such an action.

In a letter late last month, Senators Sherrod Brown of Ohio and Bob Casey of Pennsylvania, both Democrats, complained that solar importers had spent “millions of dollars on advertising and lobbying to urge political interference in the trade enforcement process.” Biden administration officials had previously said that the Commerce Department’s inquiry was immune to political interference, describing it as “quasi-judicial” and “apolitical.”

Solar tariffs have been a source of contention for decades, but they have taken on renewed importance in recent years as the consequences of climate change became more apparent. Chinese companies have expanded internationally, allowing them to continue to ship products to the United States, while American companies have struggled to compete.

The global solar industry’s dependence on China has complicated the Biden administration’s efforts to ban products linked with forced labor in Xinjiang, the northwest region where U.S. officials say Chinese authorities have detained more than one million Uyghurs and other minorities. Xinjiang is a major producer of polysilicon, the raw material for solar panels.

Solar importers complained that a ban last year on solar raw materials made with forced labor by Hoshine Silicon Industry temporarily halted billions of dollars of American projects, as companies struggled to produce documentation to customs officials to prove that neither they nor their suppliers were obtaining material from Hoshine.

Article source: https://www.nytimes.com/2022/06/06/business/economy/biden-solar-tariffs.html

Many sectors are, unquestionably, booming. Today’s labor market has 1.9 open jobs for every available worker and the fastest wage growth for rank-and-file workers since the early 1980s. That’s especially true for lower-wage occupations in fields such as leisure and hospitality.

Against that backdrop, fewer students are opting to continue their education. The latest enrollment figures, released in May by the National Student Clearinghouse Research Center, showed that 662,000 fewer students enrolled in undergraduate programs this spring than had a year earlier, a decline of 4.7 percent.

Community college enrollment is also way down, having fallen by 827,000 students since the start of the pandemic. The decline is likely partly demographic, and partly a result of choices made during the pandemic.

The shift to online learning was challenging for many students, and, just as schools were allowing students back into the classroom, the job market heated up and opportunities suddenly abounded. Inflation began to ratchet up at the same time, making earning money more critical as the cost of rent, gas and food climbed. That confluence of factors is likely keeping many students from continuing to pursue their education.

Gabby Calvo, 18, left the business administration program at Nashville State this year. She said she did not know what she wanted to do with the degree, and had begun making good money, $21 an hour, as a front-end manager at a Kroger grocery store. The job was an unusual one for someone her age to land.

“They didn’t really have anyone, so they took a chance on me,” she said, explaining that nobody else stood ready to fill the position and she had worked closely with the person who held it previously.

Teenagers are often finding they can land positions they might not have otherwise as companies stretch to find talent, and teenage unemployment is now hovering near the lowest level since the 1950s.

Article source: https://www.nytimes.com/2022/06/06/business/economy/the-potential-dark-side-of-a-white-hot-labor-market.html

She’d fought the developer through a group called the Freeman Park Neighborhood Association. It morphed into a larger organization called Friends of Mill Valley, then a group called Citizen Marin. In 2016, having raised her profile through activism, Ms. Kirsch ran for the Marin County Board of Supervisors. She lost with 42 percent of the vote.

“We’re all getting clobbered”

In retrospect, 2016 was a turning point of a different sort. It marked the beginning of a blitz of state legislation that would force cities to accept higher density neighborhoods in the form of backyard units and duplexes that could no longer be prohibited by local governments, and even higher density in the future, after the state reformed a longstanding planning process to increase the amount of growth cities have to plan for. To make sure cities actually comply, Governor Gavin Newsom recently created an “accountability and enforcement unit,” a sort of NIMBY patrol that monitors whether or not localities are approving new housing.

When you ask a planner or policy wonk how this happened, they point to a series of dull but important bills that were modest in isolation. Stacked together, however, they’ve shifted power over housing away from city councils to state bureaucrats and local planning and building departments — a move intended to prevent activists like Ms. Kirsch from having so much influence over whether new housing gets approved.

They also got comparatively little press coverage or debate, because most of the attention was consumed by a more extreme series of bills proposed by Scott Wiener, a state senator from San Francisco, from 2018 to 2020. The bills had various forms — none passed — but would have forced California cities to allow four- to eight-story buildings within a mile of rail stations and bus stops, regardless of local rules.

“I’m a former local elected official and former neighborhood association president — I am a huge believer in making decisions at a local level and people passionately tending to their community,” Mr. Wiener said in an interview. “But we’re going over the cliff, and whatever the benefits of local decision making, and there really are benefits, it has failed to produce the housing we need.”

One afternoon in 2018, after traveling to San Francisco to hear Mr. Wiener talk about his plans at a police station, Ms. Kirsch and a group of furious attendees left the meeting for a nearby restaurant, where they founded a organization called Livable California. Its aim was to take the fight for local government to the statehouse.

“The whole thing was, we’re all getting clobbered, we’ll have greater impact if we unify,” she said.

Article source: https://www.nytimes.com/2022/06/05/business/economy/california-housing-crisis-nimby.html

But a broad range of economists and policymakers, including Jerome H. Powell, the Fed chair, stress that more modest wage gains when paired with milder prices will be more sustainable for all workers, who are also consumers, in the long run.

“The Fed at this point is saying, look, we’d rather head off inflationary pressures, because if we have to slam on the brakes, then we’re going to cause a recession and it will be worse for these underserved communities,” said Gerald Cohen, an economist at the Kenan-Flagler Business School at the University of North Carolina. “It’s a challenge, because they want to pull people into the labor force. They know the way to do that is through higher wages. But higher wages can also breed higher inflation.”

For employers, too, the prospective change in the economic picture may not be spread evenly.

“Businesses with high profitability, easy access to capital, the capacity to automate and pricing power are still eager to hire,” said Bill Adams, chief economist at Comerica Bank, a large commercial bank based in Texas. “But businesses that are seeing their margins squeezed by rising costs, like hospitality, or that are seeing demand soften, like retail, are pulling job postings as their outlook softens. And competition for workers is squeezing lower-paying employers out of the job market.”

Richard Canny, the president of Ultimation in Roseville, Mich., is feeling that squeeze. His company’s conveyor belts and simple robots for use in warehousing and distribution sold briskly during the tight labor market, as e-commerce companies sought to make each worker more productive.

With 45 employees, Mr. Canny said, Ultimation has managed to stay at full staffing by raising wages — to $17 to $18 an hour to start, from around $13 to $15 — as well as offering perks like parental leave and partial tuition reimbursement. His white-collar employees have retained the flexibility to work from home. All that, he said, is necessary to compete with big employers in the area like Amazon.

“Small companies historically haven’t had to offer the same kind of benefits as the large ones, but I think that’s changed since Covid,” Mr. Canny said.

Article source: https://www.nytimes.com/2022/06/03/business/economy/forecasters-expect-job-gains-to-slow-yet-remain-solid.html

When all prices are rising, consumers lose track of how much is reasonable to pay.

“In the inflationary environment, everybody knows that prices are increasing,” said Z. John Zhang, a professor of marketing at the Wharton School at the University of Pennsylvania who has studied pricing strategy. “Obviously that’s a great opportunity for every firm to realign their prices as much as they can. You’re not going to have an opportunity again like this for a long time.”

The real disagreement is over whether higher profits are natural and good.

Basic economic theory teaches that charging what the market can bear will prompt companies to produce more, constraining prices and ensuring that more people have access to the good that’s in short supply. Say you make empanadas, and enough people want to buy them that you can charge $5 each even though they cost only $3 to produce. That might allow you to invest in another oven so you can make more empanadas — perhaps so many that you can lower the price to $4 and sell enough that your net income still goes up.

Here’s the problem: What if there’s a waiting list for new ovens because of a strike at the oven factory, and you’re already running three shifts? You can’t make more empanadas, but their popularity has risen to the point where you would charge $6. People might buy calzones instead, but eventually the oven shortage makes all kinds of baked goods hard to find. In that situation, you make a tidy margin without doing much work, and your consumers lose out.

This has happened in the real world. Consider the supply of fertilizer, which shrank when Russia’s invasion of Ukraine prompted sanctions on the chemicals needed to make it. Fertilizer companies reported their best profits in years, even as they struggle to expand supply. The same is true of oil. Drillers haven’t wanted to expand production because the last time they did so, they wound up in a glut. Ramping up production is expensive, and investors are demanding profitability, so supply has lagged while drivers pay dearly.

Even if high prices aren’t able to increase supply and the shortage remains, an Economics 101 class might still teach that price is the best way to allocate scarce resources — or at least, that it’s better than the government price controls or rationing. As a consequence, less wealthy people may simply have no access to empanadas. Michael Faulkender, a finance professor at the University of Maryland, says that’s just how capitalism works.

“With a price adjustment, people who have substitutes or maybe can do with less of it will choose to consume less of it, and you have the allocation of goods for which there is a shortage go to the highest-value usage,” Dr. Faulkender said. “Every good in our society is based on pricing. People who make more money are able to consume more.”

Sorting Chickens and Eggs

The question of whether profit margins are speeding inflation is harder to figure out.

Economists have run some numbers on how much other variables might have contributed to inflation. The Federal Reserve Bank of San Francisco found that fiscal stimulus programs accounted for 3 percentage points, for example, while the St. Louis Fed estimated that manufacturing sector inflation would have been 20 percentage points lower without supply chain bottlenecks. Dr. Bivens, of the Economic Policy Institute, performed a simple calculation of the share of price increases attributable to labor costs, other inputs, and profits over time, and found that profit’s contribution had risen significantly since the beginning of 2020 as compared with the previous four decades.

Article source: https://www.nytimes.com/2022/06/03/business/economy/price-gouging-inflation.html

President Biden has backed substantial subsidies for electric vehicles, including vehicles made by unionized employees, but those measures have languished in the Senate and their prospects are uncertain.

In the meantime, much of the job growth tied to electric vehicles has occurred at nonunion facilities owned by newer automakers like Tesla, Rivian and Lucid, or U.S.-based battery facilities owned wholly or in part by foreign companies like the South Korean manufacturers SK Innovation and LG Chem.

In Thursday’s announcement, Ford noted that its new battery and vehicle production facilities in the South would create about 11,000 jobs. But those employees will not automatically become union members, and workers in those states tend to face an uphill battle in unionizing.

For investors, however, Ford’s additional investments in electric vehicles appears to be welcome news as the company seeks to reinvent itself amid competition from the likes of Tesla and Rivian. Ford’s stock price, which had dropped substantially this year, rose more than 2 percent on Thursday.

Ford also said Thursday that it sold 6,254 electric vehicles in May, a jump of more than 200 percent from a year earlier. That number included 201 F-150 Lightnings, which the company started producing in April.

The company has about 200,000 reservations for the Lightning, which is central to its efforts to catch up to Tesla, and stopped accepting new ones because production will take months to meet demand.

Ford indicated that sales of the truck would be much higher in the coming months as production increased and trucks in transit reached dealerships. Ford is aiming to produce 150,000 Lightning trucks a year by the end of 2023.

Sales of electric vehicles — and conventional cars — have been limited by a shortage of computer chips. Ford’s overall sales of new vehicles in May fell 4.5 percent from a year earlier. Auto executives are also increasingly worried that the supply of lithium, nickel and other raw materials needed to make the batteries that power electric cars is not keeping up with the growing demand for those vehicles.

Vikas Bajaj contributed reporting.

Article source: https://www.nytimes.com/2022/06/02/business/economy/ford-union-jobs.html

Technology restrictions have harmed other Russian industries as well, U.S. officials say. Equipment for the oil and gas industry has been degraded, maintenance for tractors and heavy equipment made by Caterpillar and John Deere has halted, and up to 70 percent of the commercial airplanes operated by Russian airlines, which no longer receive spare parts and maintenance from Airbus and Boeing, are grounded, officials say.

But some experts have sounded notes of caution. Michael Kofman, the director of Russia studies at CNA, a research institute in Arlington, Va., voiced skepticism about some claims that the export controls were forcing some tank factories and other defense companies in Russia to shutter.

“There’s not been much evidence to substantiate reports of problems in Russia’s defense sector,” he said. It was still too early in the war to expect meaningful supply chain problems in Russia’s defense industry, he said, and the sourcing for those early claims was unclear.

Maria Snegovaya, a visiting scholar at George Washington University who has studied sanctions on Russia, said the lack of critical technologies and maintenance was likely to start being felt widely across Russian industry in the fall, as companies run out of parts and supplies or need upkeep on equipment. She and other analysts said even the production of daily goods such as printer paper would be affected; Russian companies had bought the dye to turn the paper white from Western companies.

“We expect random disruptions in Russia’s production chains to manifest themselves more frequently,” Ms. Snegovaya said. “The question is: Are Russian companies able to find substitutes?”

U.S. officials say the Russian government and companies there have been looking for ways to get around the controls but have so far been largely unsuccessful. The Biden administration has threatened to penalize any company that helps Russia evade sanctions by cutting it off from access to U.S. technology.

In an interview last month, Ms. Raimondo said the United States was not seeing any systematic circumvention of the export controls by any country, including China, which aligned itself with Russia before and during the invasion of Ukraine. Companies were making independent decisions not to engage with Russia, even though the country was “trying very hard to get around” the global coalition of allies that had imposed export controls, Ms. Raimondo said.

Article source: https://www.nytimes.com/2022/06/02/business/economy/russia-weapons-american-technology.html