December 8, 2023

Factory Jobs Are Booming Like It’s the 1970s

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.”

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Central Banks Raise Interest Rates, Fearing Worse Pain Later

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.

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The Fed Intensifies Its Battle Against Inflation

In the 1970s, the Fed’s attempts at rate increases did not go far enough and were “insufficient to bring inflation down,” said William English, a former director of the monetary affairs division at the Fed who is now an economist at Yale University.

“That’s what they want to avoid,” he said. “In the end, higher inflation isn’t acceptable — you are going to have to bring it down.”

But to lower growth enough to tame price increases, officials think that rates will need to climb notably. Their 2022 forecasts imply that rates could rise by three-quarters of a point at the next meeting, then half a point at the Fed’s December gathering. That is higher than many on Wall Street had been expecting before the meeting, and far more action than what markets had bet on as recently as a few weeks ago.

And policymakers plan to keep going. Central bankers now expect to lift borrowing costs to 4.6 percent by the end of 2023, their fresh projections showed, up from an estimate of 3.8 percent in June. Fed officials do expect to begin lowering rates in 2024, but they anticipate bringing them down slowly.

Given that central bankers are gearing up to push rates to levels not seen since before the 2008 financial crisis, Ms. Misra said she was surprised to see that they did not project an even higher unemployment rate.

Joblessness that climbs to 4.4 percent, as central bankers projected, would undeniably be painful. Omair Sharif, founder of Inflation Insights, calculated that it would amount to about 1.2 million more unemployed people. But it would be relatively mild given the scope of the tightening the central bank is projecting. In the 2008 recession, unemployment rose to 10 percent.

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How the Car Market Is Shedding Light on a Key Inflation Question

The auto market split into two segments that are now diverging — new cars and used cars.

New-car production was upended as the pandemic shut down factories making semiconductors and other parts, and it is only limping back. Freshly minted vehicles remain extraordinarily scarce, according to dealers and data, and several industry experts said they didn’t see a return to normal levels of output for years as supply problems continue. Prices are still increasing swiftly, and dealer profits remain sharply elevated with little sign of cracking.

Ford Motor said on Monday that it would spend $1 billion more on parts than it was planning to in the third quarter because some components had become more expensive and harder to find.

By contrast, the supply of used cars has rebounded after plunging in the pandemic, and prices have begun to depreciate at a wholesale level, where dealers buy their stock. But, so far, those dealers aren’t really passing those savings along to consumers. The price of a typical used car has stabilized around $28,000, up 9 percent from a year ago, based on Cox Automotive data. Official used-car inflation data is easing, but only slightly.

Why consumer used-car prices — and dealer profits — are taking time to moderate is something of a mystery. Jonathan Smoke, chief economist at Cox Automotive, said dealers might be basing their prices on what they paid earlier in the year, when costs were higher, for the cars sitting on their lots.

“Dealers are feeling it,” Mr. Smoke said of the price moderation. “But because they price their vehicles based on what they pay for them, the consumer isn’t seeing the price discounts yet.”

Some early instances of discounting are showing up. At the Buick and GMC dealership that Beth Weaver runs in Erie, Pa., demand for used cars has begun to slow down, and the business has sold a few vehicles at a loss.

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How to Read the Fed’s Projections Like a Pro

In the Fed’s last set of projections, officials saw unemployment rising to 4.1 percent in 2024. (September is the first set of projections that will include 2025.) That was above the current 3.7 percent unemployment rate and higher than the 4 percent unemployment rate the Fed saw as sustainable over the longer run.

“These are the unfortunate costs of reducing inflation,” Mr. Powell said late last month. “But a failure to restore price stability would mean far greater pain.”

The road toward higher unemployment is paved with slower growth. To force the job market to cool and inflation to moderate, Fed officials believe they have to drag economic growth below its potential level — and how much it is expected to drop can send a signal about how punishing the Fed thinks its policies will be.

Many experts think that the economy is capable of a certain level of growth in any given year, based on fundamental characteristics like the age of its population and productivity of its companies. Right now, the Fed estimates that longer-run sustainable level as about 1.8 percent, after adjusting for inflation.

Last year, the economy was growing much more strongly than that — it began overheating. Now, to bring inflation down, it needs to slow below that rate for some time, the logic goes. As of their latest projections, officials saw growth at 1.7 percent this year and next. If they show a bigger down-drift this time, it will be a signal that they think a more aggressive hit to the economy will be needed to wrestle inflation lower.

The inflation estimates in the Fed’s projections typically do not offer a lot of insight.

That’s because the Fed’s forecasts predict how the economy will shape up if central bankers set what they consider to be “appropriate” monetary policy. To qualify as “appropriate,” monetary policy by definition must push price increases back toward the Fed’s 2 percent annual average goal over the course of a few years. That means Fed inflation forecasts always converge back toward the central bank’s goal in economic estimates.

If there is a glimmer of utility here, it is how long the central bank sees it taking to wrestle prices back to its target level. In June, for instance, officials didn’t see it happening through 2024, signaling that the path toward more subdued inflation is likely to be a long one.

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What Comes Next in the Fed’s Fight Against Inflation?

If the Fed continues raising rates along the trajectory that economists and investors increasingly expect, the fallout could be painful. In the early 1980s, the last time inflation was as high as it is today, the central bank under Paul A. Volcker jerked borrowing costs sharply higher and mired the economy in a recession that sent joblessness to double-digit levels. Homebuilders mailed Mr. Volcker two-by-fours from buildings they could not build; car dealers sent keys from cars they could not sell.

This year’s rate increases are not as severe. The Fed has raised rates from near zero in March to a range of 2.25 to 2.5 percent, and this week’s expected move would take that to 3 to 3.25 percent. If the central bank raises rates as much as investors expect over the coming months, they will end the year well above 4 percent. In the 1980s, rates jumped to about 19 percent from 9 percent.

Still, four full percentage points of rate increases in 10 months would be the fastest policy adjustment since Mr. Volcker’s campaign — and while Fed policymakers have been hoping that they can let the economy down gently and without causing a painful recession, economists have warned that a benign outcome is less and less likely.

That central bank has emphasized that it has an obligation to get inflation back in check.

The Fed has two economic goals: maximum employment and stable inflation around 2 percent. While unemployment is currently very low, prices are increasing at more than three times the target rate based on the Fed’s preferred measure and remained stubbornly rapid and broad in August.

As inflation has lingered month after month, the Fed has repeatedly ramped up its response. It lifted rates a quarter point in March, a half point in May and three-quarters of a point at each of its past two meetings. Like investors, many economists think that a full percentage-point move is possible but not likely this week.

A big reason for raising rates quickly is to convince businesses and consumers that the central bank is committed to reining in rapid price increases. If workers begin to believe that inflation will last, they may push for higher wages to cover their costs, which employers then pass onto customers in the form of higher prices, setting off an upward spiral.

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The Subprime Loans for College Hiding in Plain Sight

At the time, you could borrow only $3,000 per year. In 1992, that cap went away, thanks, it seems, to a successful push by a higher education lobbying association, according to a report from the Urban Institute report in 2019.

And, as college costs escalated, and schools included information about PLUS loans in a growing number of financial aid notifications that they sent to families, more of them borrowed. The government turns you down for the loan only if, at some point recently, you’ve discharged debt in bankruptcy, been subject to a tax lien, been 90 or more days late on a big bill or had similar problems.

A number of policy organizations have examined the impact of these loans as more data has become available. Let’s start by looking at the adjusted gross incomes of the parents who borrow using PLUS.

About one in three white borrowers earn more than $110,001, and about one in 10 earn less than $30,000 a year, according to Ms. Fishman, the acting director of the higher education program at New America and the author of a 2018 study on the matter.

Black families flip the script, with about one in 10 earning more than $110,001 and about one in three earning less than $30,000 a year. Unsurprisingly, given those income statistics, the federal government has, during the financial aid application process, told 42 percent of Black borrowers using Parent PLUS that they can’t afford to pay a single cent toward their children’s education, according to a Century Foundation report from this year.

But if there is not enough grant money available — from the government or the college — to subsidize their kids’ tuition in full, these parents and others like them borrow anyway. To put a finer point on it, the Department of Education says it doesn’t expect them to pay anything. And yet it tends to lend many of them nearly everything.

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Railroad Workers Point to Punishing Schedules as Cause of Strike

The side effect, however, was to gradually eliminate any cushion in staffing levels.

Unlike many workers, the conductors and engineers who operate trains don’t get weekends or other consistent days off.

Instead, said Mr. Pierce, the president of the locomotive engineers union, workers go to the bottom of a list of available crews when they return home from a trip that can last days. The fewer the workers, the shorter the list, and the less time it takes for them to be summoned into action again.

“It can go on indefinitely, till they interrupt the cycle by taking paid time off, which the companies routinely reject,” Mr. Pierce said.

Major U.S. freight rail carriers began to accelerate the staffing cuts in recent years as they switched to a system known as precision scheduled railroading, or P.S.R., which focuses on scaling back excess equipment and employees and streamlining the shipping process.

The industry has said P.S.R. enables carriers to run more efficiently and provide more reliable service, while also improving profits. Freight rail customers and employees say it has resulted in deteriorating working conditions and customer service and little resilience in dealing with unforeseen circumstances, like weather emergencies. The Surface Transportation Board, a federal regulatory agency, estimates that the carriers have 30 percent fewer employees today than six years ago.

Reducing labor to match this operating model may have been sound in principle, said Mr. Paterson, the industry analyst. But he said the carriers appeared to have cut back too much to allow them to handle potential disruptions, of which the pandemic was an epic example.

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New Inflation Developments Are Rattling Markets and Economists. Here’s Why.

Consumer Price Index data from August released on Tuesday illustrated that point. Gas prices dropped sharply last month, which many economists expected would pull overall inflation down. They also thought that recent improvements in the supply chain would moderate price increases for goods. Used car costs, a major contributor to inflation last year, are now declining.

Yet, in spite of those positive developments, quickly rising costs across a wide array of products and services helped to push prices higher on a monthly basis. Rent, furniture, meals at restaurants and visits to the dentist are all growing more expensive. Inflation climbed 8.3 percent on an annual basis, and picked up by 0.1 percent from the prior month.

The data underscored that, even without extraordinary disruptions, so many products and services are now increasing in price that costs might continue ratcheting up. Core inflation, which strips out food and fuel costs to give a sense of underlying price trends, reaccelerated to 6.3 percent in August after easing to 5.9 percent in July.

“Inflation currently has a very large underlying component that is grounded in a red-hot labor market,” said Jason Furman, an economist at Harvard University. “And then, in any given month, you may get more inflation because of bad luck, like gas going up, or less because of good luck, like gas going down.”

He estimated that core inflation would continue to climb at around 4.5 percent, and rising, even if pandemic- and war-related disruptions stopped pushing prices higher.

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In New York City, Pandemic Job Losses Linger

Some blue-collar employees who lost their jobs early in the pandemic are now holding out for positions that would allow them to work from home.

Jade Campbell, 34, has been out of work since March 2020, when the pandemic temporarily shuttered the Old Navy store where she had worked as a sales associate. When the store called her back in the fall, she was in the middle of a difficult pregnancy, with a first-grade son who was struggling to focus during online classes. She decided to stay home, applying for different types of government assistance.

Ms. Campbell now lives on her own in Queens without child care support; her children are 1 and 8 years old. She has refused to get vaccinated against Covid-19, a prerequisite in New York City for many in-person jobs. Still, she said she felt optimistic about applying for remote customer service roles after she reached out to Goodwill NYNJ, a nonprofit, for help with her résumé.

“I got two kids I know I have to support,” she said. “I can’t really depend on the government to help me out.”

At Petri Plumbing Heating in Bay Ridge, Brooklyn, several workers quit over the city’s policy that employees of private businesses be fully vaccinated. The restriction was the most stringent in the country when it was announced in December 2021 at the end of Mayor Bill de Blasio’s term.

After Mayor Eric Adams signaled earlier this year that his administration would not enforce the mandate, Michael Petri, the company’s owner, offered to rehire three former workers. One returned, another had found another job and the third had moved to another state, he said.

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