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      The US should break up monopolies – not punish working Americans for rising prices | Robert Reich

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      The US should break up monopolies – not punish working Americans for rising pricesRobert ReichThe Fed is putting people out of work to reduce workers’ bargaining power and reduce inflation. They’ve got it all wrong Job growth and wages are slowing. Employers added 223,000 jobs in December, the labor department reported on Friday – lower than the average in recent months.Average hourly wages rose by 4.6% in December, according to Friday’s report. That’s a slowdown from 4.8% in November.All this is music to the ears of Federal Reserve chair Jerome Powell, because the Fed blames inflation on rising wages. The Fed has been increasing interest rates to slow the economy and thereby reduce the bargaining power of workers to get wage gains.At his press conference on 14 December announcing the Fed’s latest interest rate hike, Powell warned that “the labor market remains extremely tight, with the unemployment rate near a 50-year low, job vacancies still very high, and wage growth elevated”.But aren’t higher wages a good thing?The typical American worker’s wage has been stuck in the mud for four decades.Most of the gains from a more productive economy have been going to the top – to executives and investors. The richest 10% of Americans now own more than 90% of the value of shares of stock owned by Americans.Powell’s solution to inflation is to clobber workers even further. He says “the labor market continues to be out of balance, with demand substantially exceeding the supply of available workers”.But if the demand for workers exceeds the supply, isn’t the answer to pay workers more?Not according to Powell and the Fed. Their answer is to continue to raise interest rates to slow the economy and put more people out of work, so workers can’t get higher wages. That way, “supply and demand conditions in the labor market [will] come into better balance over time, easing upward pressures on wages and prices,” says Powell.Putting people out of work is the Fed’s means of reducing workers’ bargaining power and the “upward pressures on wages and prices”.The Fed projects that as it continues to increase interest rates, unemployment will rise to 4.6% by the end of 2023 – resulting in more than 1m job losses.But fighting inflation by putting more people out of work is cruel, especially when America’s safety nets – including unemployment insurance – are in tatters.As we saw at the start of the pandemic, because the US doesn’t have a single nationwide system for getting cash to jobless workers, they have to depend on state unemployment insurance, which varies considerably from state to state.Many fall through the cracks. When the pandemic began, fewer than 30% of jobless Americans qualified for unemployment benefits.The problem isn’t that wages are rising. The real problem is that corporations have the power to pass those wage increases – along with record profit margins – on to consumers in the form of higher prices.If corporations had to compete vigorously for consumers, they wouldn’t be able to do this. Competitors would charge lower prices and grab those consumers away.Corporations aren’t even plowing their extra profits into new investments that would generate higher productivity in the future. They’re buying back their shares to boost stock prices. Through the end of 2022, American firms announced stock buybacks exceeding $1tn.A rational response to inflation, therefore, would not increase unemployment in order to reduce the bargaining power of workers to get higher wages.It would be to reduce the pricing power of corporations to pass those costs along to consumers along with rising profit margins, by making markets more competitive.Corporate pricing power is out of control because corporations face so little competition.Worried about sky-high airline fares and lousy service? That’s largely because airlines have merged from 12 carriers in 1980 to four today.Concerned about drug prices? A handful of drug companies control the pharmaceutical industry.Upset about food costs? Four giants now control over 80% of meat processing, 66% of the pork market, and 54% of the poultry market.Worried about grocery prices? Albertsons bought Safeway and now Kroger is buying Albertsons. Combined, they would control almost 22% of the US grocery market. Add in Walmart, and the three brands would control 70% of the grocery market in 167 cities across the country.And so on. The evidence of corporate concentration is everywhere.It’s getting worse. There were over a thousand major corporate mergers or acquisitions last year. Each had a merger value of $100m or more. The total transaction value was $1.4tn.The government must stop putting the responsibility for fighting inflation on working people whose wages have gone nowhere for four decades.Put the responsibility where it belongs – on big corporations with power to raise their prices.One possibility: any large corporation in an industry dominated by five or fewer giant corporations that raises its prices more than the Fed’s target of 2% should be presumed to have monopoly power, and slammed with an antitrust lawsuit.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California, Berkeley, and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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      Trump, Bankman-Fried and Musk are the monsters of American capitalism | Robert Reich

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      Trump, Bankman-Fried and Musk are the monsters of American capitalismRobert ReichFor them, and for everyone who still regards them as heroes, there is no morality in business or economics. The winnings go to the most ruthless If this past week presents any single lesson, it’s the social costs of greed. Capitalism is premised on greed but also on guardrails – laws and norms – that prevent greed from becoming so excessive that it threatens the system as a whole.Yet the guardrails can’t hold when avarice becomes the defining trait of an era, as it is now. Laws and norms are no match for the possibility of raking in billions if you’re sufficiently ruthless and unprincipled.Donald Trump’s tax returns, just made public, reveal that he took bogus deductions to reduce his tax liability all the way to zero in 2020. All told, he reported $60m in losses during his presidency while continuing to pull in big money.Every other president since Nixon has released his tax returns. Trump told America he couldn’t because he was in the middle of an IRS audit. But we now learn that the IRS never got around to auditing Trump during his first two years in office, despite being required to do so by a law dating back to Watergate, stating that “individual tax returns for the president and the vice-president are subject to mandatory review”.Of course, Trump is already synonymous with greed and the aggressive violation of laws and norms in pursuit of money and power. Worse yet, when a president of the United States exemplifies – even celebrates – these traits, they leach out into society like underground poison.Meanwhile, this past week the SEC accused Sam Bankman-Fried of illicitly using customer money from FTX from the beginning to fund his crypto empire.“From the start, contrary to what FTX investors and trading customers were told, Bankman-Fried, actively supported by Defendants, continually diverted FTX customer funds … and then used those funds to continue to grow his empire, using billions of dollars to make undisclosed private venture investments, political contributions, and real estate purchases.”If the charge sticks, it represents one of the largest frauds in American history. Until recently, Bankman-Fried was considered a capitalist hero whose philanthropy was a model for aspiring billionaires (he and his business partner also donated generously to politicians).But like the IRS and Trump, the SEC can’t possibly remedy the social costs that Bankman-Fried has unleashed – not just losses to customers and investors but a deepening distrust and cynicism about the system as a whole, the implicit assumption that this is just what billionaires do, that the way to make a fortune is to blatantly disregard norms and laws, and that only chumps are mindful of the common good.Which brings us to Elon Musk, whose slash-and-burn maneuvers at Twitter might cause even the most rabid capitalist to wince. They also raise questions about Musk’s other endeavor, Tesla. Shares in the electric vehicle maker dropped by almost 9% on Thursday as analysts grew increasingly concerned about its fate. Not only is Musk neglecting the carmaker but he’s appropriating executive talent from Tesla to help him at Twitter. (Tesla stock is down over 64% year-to-date.)Musk has never been overly concerned about laws and norms (you’ll recall that he kept Tesla’s factory in Fremont, California, going during the pandemic even when public health authorities refused him permission to do so, resulting in a surge of Covid infections among workers). For him, it’s all about imposing his gargantuan will on others.Trump, Bankman-Fried and Musk are the monsters of American capitalism – as much products of this public-be-damned era as they are contributors to it. For them, and for everyone who still regards them as heroes, there is no morality in business or economics. The winnings go to the most ruthless. Principles are for sissies.But absent any moral code, greed is a public danger. Its poison cannot be contained by laws or accepted norms. Everyone is forced to guard against the next con (or else pull an even bigger con). Laws are broken whenever the gains from breaking them exceed the penalties (multiplied by the odds of getting caught). Social trust erodes.Adam Smith, the so-called father of modern capitalism, never called himself an economist. He called himself a “moral philosopher,” engaged in discovering the characteristics of a good society. He thought his best book was not The Wealth of Nations, the bible of modern capitalist apologists, but the Theory of Moral Sentiments, where he argued that the ethical basis of society lies in compassion for other human beings.Presumably Adam Smith would have bemoaned the growing inequalities, corruption, and cynicism spawned by modern capitalism and three of its prime exemplars – Trump, Bankman-Fried, and Musk.TopicsUS newsOpinionUS politicsUS taxationDonald TrumpSam Bankman-FriedFTXUS economycommentReuse this content More

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      First Gen Z congressman says he was rejected from Washington DC housing

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      First Gen Z congressman says he was rejected from Washington DC housingFlorida Democrat Maxwell Frost says he incurred debt from his campaign and was recently denied an apartment for poor credit Maxwell Frost, the Florida Democrat who made history last month as the first Gen Z congressman-elect, made waves on social media Thursday morning with a tweet in which he said he was struggling to find somewhere to live in Washington.First Gen Z member elected as midterms could usher in a more diverse CongressRead moreFrost wrote: “Just applied to an apartment in DC where I told the guy that my credit was really bad. He said I’d be fine. Got denied, lost the apartment and the application fee. This ain’t meant for people who don’t already have money.”He later added: “For those asking, I have bad credit cause I ran up a lot of debt running for Congress for a year and a half. Didn’t make enough money from Uber itself to pay for my living.“It isn’t magic that we won our very difficult race. For that primary, I quit my full-time job cause I knew that to win at 25 yrs old, I’d need to be a full-time candidate. 7 days a week, 10-12 hours a day. It’s not sustainable or right but it’s what we had to do.“As a candidate, you can’t give yourself a stipend or anything till the very end of your campaign. So most of the run, you have no $ coming in unless you work a second job.”Democrat New York congresswoman Alexandria Ocasio-Cortez went through something similar, Frost said, adding: “I also recognize that I’m speaking from a point of privilege cause in 2 years time, my credit will be okay because of my new salary that starts next year. We have to do better for the whole country.”In September, in Guardian interview with Frost, he described how he was financing his run for Congress, including driving an Uber, and described how he had been living with his girlfriend and sister. When they were priced out of their apartment in October, he said he was couchsurfing and sleeping in his car for a month before finding a new place.‘I’ve been Maced, I’ve been to jail …’ Can 25-year-old Maxwell Frost now be the first Gen Z member of Congress?Read more“I couldn’t go back home because my 97-year-old grandmother lives there, and this was in the middle of the Delta variant,” he said at the time.Today’s news, that Frost is struggling to secure a place to live in Washington, will likely add to his determination to address the affordable housing crisis afflicting young people in many parts of the US. After all, as journalist Andrew Lawrence wrote a few months ago: “So when he talks with urgency about the affordable housing crisis, it’s real.“There’s still a lot of barriers for working-class people to run for office,” he says. “I want to be the voice who shows how messed up it is and help demystify the process.”TopicsFloridaUS politicsUS housing and sub-prime crisisUS economyReuse this content More

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      US adds 263,000 jobs in November as unemployment rate stays at 3.7%

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      US adds 263,000 jobs in November as unemployment rate stays at 3.7%Jobs market remains strong even as Fed imposes biggest series of rate rises in decades in effort to tame inflation The US added 263,000 jobs in November, the labor department announced on Friday, another strong month of jobs growth. The unemployment rate remained at 3.7%, close to a 50-year low.Employers hired 284,000 new positions in October and 269,000 in September and the latest figures show hiring has remained resilient despite rising interest rates and the announcement of a series of layoffs at technology and real estate companies.The jobs market has remained strong even as the Federal Reserve has imposed the biggest series of rate rises in decades in its fight to tame inflation. This week, the Fed chair, Jerome Powell, indicated that the continuing strength of the jobs market – and rising wages – were likely to trigger more rate rises in the coming months.The US had been expected to add 200,000 jobs in November. The latest jobs numbers – the last before the Fed meets to decide its next move later this month – will strengthen the central bank’s resolve to keep raising rates.“This phenomenal labor market is showing little sign of slowdown,” said Becky Frankiewicz, president and chief commercial officer of ManpowerGroup. “Despite recurring headlines of deep cutbacks – primarily in tech – other sectors have scaled up; and while we’ve been bracing for a downturn, the broader labor market has barely flinched.”Economists expect rate hikes will eventually dampen hiring, potentially leading to a recession and job losses next year. But so far, the jobs market has shaken off the Fed’s interventions.The government figures follow a downbeat report from ADP, the US’s largest payroll supplier. On Wednesday, ADP said the private sector had added just 127,000 positions for the month, well below the 190,000 forecast by economists and a steep reduction from the 239,000 jobs ADP recorded in October.ADP’s chief economist, Nela Richardson, said it was still too early to say but it seemed the rate rises were filtering through to hiring decisions.“Turning points can be hard to capture in the labor market, but our data suggest that Federal Reserve tightening is having an impact on job creation and pay gains,” said Richardson. “In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting and the post-pandemic recovery is stabilizing.”TopicsUS unemployment and employment dataUS economyFederal ReserveUS politicsnewsReuse this content More

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      Senate moves quickly to avert US rail strike by passing key bill

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      Senate moves quickly to avert US rail strike by passing key billBill goes to Biden’s desk for his signature after legislation that binds rail firms and workers to settlement plan passes 80-15 The Senate moved quickly on Thursday to avert a rail strike that the Biden administration and business leaders warned would have had devastating consequences for the nation’s economy.The Senate passed a bill to bind rail companies and workers to a proposed settlement that was reached between the rail companies and union leaders in September. That settlement had been rejected by some of the 12 unions involved, creating the possibility of a strike beginning 9 December.The Senate vote was 80-15. It came one day after the House voted to impose the agreement. The measure now goes to Joe Biden’s desk for his signature.“I’m very glad that the two sides got together to avoid a shutdown, which would have been devastating for the American people, to the American economy and so many workers across the country,” the Democratic majority leader, Chuck Schumer, told reporters.Schumer spoke as the labor secretary, Marty Walsh, and transport secretary, Pete Buttigieg, emphasized to Democratic senators that rail companies would begin shutting down operations well before a potential strike would begin. The administration wanted the bill on Biden’s desk by the weekend.Shortly before Thursday’s votes, Biden – who had urged Congress to intervene earlier this week – defended the contract that four of the unions had rejected, noting the wage increases it contains.“I negotiated a contract no one else could negotiate,” Biden said at a news briefing with Emmanuel Macron, the French president. “What was negotiated was so much better than anything they ever had.”Critics say the contract that did not receive backing from enough union members lacked sufficient levels of paid leave for rail workers. Biden said he wanted paid leave for “everybody” so that it wouldn’t have to be negotiated in employment contracts, but Republican lawmakers have blocked measures to require time off work for medical and family reasons.The US president said that Congress should now impose the contract to avoid a strike that Biden said could cause 750,000 job losses and a recession.Senators also voted on Thursday on a measure, passed in the House on Wednesday along party lines, that would provide seven days of paid sick leave to railroad workers.It fell eight votes short of a 60-vote threshold needed for passage in the Senate.The rail companies and unions have been engaged in high-stakes negotiations. The Biden administration helped broker deals in September but four of the unions rejected them. Eight others approved five-year deals and are getting back pay for their workers for 24% raises retroactive to 2020.The unions maintain that railroads can easily afford to add paid sick time when they are recording record profits. Several of the big railroads involved in these contract talks reported more than $1bn profit in the third quarter.TopicsUS SenateUS CongressRail industryRail transportUS economyUS politicsJoe BidennewsReuse this content More

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      We need serious public policy, not more printed money – the US economy is in tatters

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      AnalysisWe need serious public policy, not more printed money – the US economy is in tattersDoug HenwoodDecades of bailouts have convinced some that the Fed will always come to the rescue – but this only papers over the fundamental flaws of the US economy With the Federal Reserve leading the world’s central banks in a tightening cycle of interest rate rises, the likes of which we haven’t seen since 2006, commentators across the political spectrum are noting the fondness of the Fed chair, Jerome “Jay” Powell, for his legendary predecessor, Paul Volcker. On the left, the comparison is fearful; on the center and on the right, it’s one of admiration. But circumstances don’t really support the comparison.Fed announces sixth consecutive hike in US interest rates to fight inflationRead moreOn taking office in October 1979, Volcker declared “the standard of living of the average American has to decline” as a consequence of the war against the chronic inflation of the 1970s. He quickly set to work making that happen by driving interest rates up towards 20% and creating the deepest US recession since the 1930s.That squeeze did put an end to high inflation but at a tremendous social cost. Six million people lost their jobs over the next three years, taking the unemployment rate from 6% to almost 11% in late 1982. The cost wasn’t merely short-term. About half of those job losses were categorized as permanent, as opposed to being temporary layoffs, many of them in the manufacturing heartland. The term “rust belt” entered common usage.Volcker was appointed by Jimmy Carter, who seemed to have no idea of what he was getting himself into. His friend and adviser, the Georgia banker Bert Lance, prophetically warned him that he was dooming his prospects in the 1980s election. But Carter listened to the consensus of Wall Street and the political class – Volcker was the man to tame inflation, which was running around 13% at the end of 1979. The US had seen inflation rates that high before, but never outside of major wars or their immediate aftermath. Inflation, which was under 2% in 1965, had been rising relentlessly for 15 years, barely pausing even in the nasty recession of the mid-1970s. Contrary to a belief popular on the left, that inflation was not kind to workers. Wages badly lagged prices, and real average hourly earnings fell 14% between 1973 and 1980.There are some similarities between the present and 40 years ago. Then, as now, food and energy prices were important factors in sparking inflation, but in both cases, even if you strip out those two volatile components, a severe inflation remains. And in both cases, polls have shown inflation to be deeply unpopular.But there are also major differences, notably in the strength of labor. At the end of the 1970s, almost a quarter of all workers were unionized; now only about a tenth are. Then, an average of 22,000 workdays were lost to strikes every year; last year it was just 1,500 – a decline of 93%. The early 1980s recession hammered the bargaining power of the working class. Unions were busted, and we went from a time when Take This Job and Shove It could be a hit song (as it was in 1977) to one where workers were grateful to have any job at all, no matter how tenuous and low-paying. As the recession ended in late 1982, the stock market took off and the employer class began a 40-year celebration of its triumph.That’s not the world Powell finds himself in. Inflation has been a problem for close to 15 months rather than 15 years, and although there are some tentative signs of life in the labor movement – notably at one Amazon site and a few hundred Starbucks outlets (out of 9,000) – the share of the labor force represented by unions fell last year, and strike activity so far in 2022 is about a third lower than in 2021. Unlike the inflation of the 1970s, this is not the wage-push kind (to use the jargon). It’s been driven first by supply chain blockages, thanks to Covid, and extended by embargoes against Russian energy exports, and most workers are just looking on helplessly as their paychecks fail to keep up with price increases.There’s another difference as well: we’re coming off a decade of extremely indulgent monetary policy. Coming out of the Great Recession, the Fed kept short-term interest rates near zero between 2011 and 2021, with the brief exception when they pushed them up to just over 2% in 2017 and 2018 (still quite low by historical standards). On top of that, the central bank pumped over $3tn (£2.7tn) into the financial markets between 2008 and 2015, and almost $5tn between early 2020 and early 2022. The earlier pumping was meant to prevent a financial implosion after the sub-prime crisis, and the latter to counter the threats of the early pandemic months. But the result of both has been to stimulate crazy inflation in asset prices – stocks, crypto, unicorns, housing – a remarkable waste of capital and one that can be very risky to deflate. Decades of bailouts have convinced financial market players that the Fed will always come in to rescue them and reversing that mentality could require a Volckerish austerity for Wall Street – one that’s politically hard to imagine.The Fed’s interest rate hikes are going to hit the most vulnerable | Dean BakerRead moreWhat Powell is up to now bears almost no resemblance to Volcker’s clampdown. The federal funds rate, the interest rate at which banks lend each other money overnight – that is the Fed’s most direct policy target – changed from just above 0% to just under 4% after raising the target rate another 0.75 points this week. That’s almost 15 points below the Volcker peak. In real terms – deducting the rate of inflation – Volcker’s peak was almost 10%, a lot higher. Right now, the real fed funds rate is around -4% (yes, that’s a negative sign). Powell may admire Volcker, but next to him, he’s a piker.The debate over monetary policy overlooks a more important issue. That decade of cheap money papered over a lot of fundamental problems with the US economy: low levels of public and private investment, massive polarization between rich and poor and unstable employment for much of the labor force. These should be addressed with serious public policy, not by printing money. It would be nice if we talked about that, but given the degraded state of American political discourse, I’m not hopeful.
      Doug Henwood is an economic journalist based in Brooklyn. His radio show, Behind the News, airs on KPFA radio in Berkeley, and is available on all the standard podcast outlets
      TopicsFederal ReserveUS economyJerome PowellUS politicsInflationanalysisReuse this content More

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      Democrats on the defensive as economy becomes primary concern over abortion

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      Democrats on the defensive as economy becomes primary concern over abortionPolls indicate tide shifting toward Republicans with high inflation rates and gas prices working in their favor With less than two weeks to go until election day, Democrats’ hopes of defying political history and keeping their narrow majorities in the House and Senate appear to be fading, as many of the party’s candidates go on the defensive in the final days of campaigning.Over the summer, many election forecasters wondered if Democrats could avoid the widespread losses typically seen by the president’s party in the midterms. With voters expressing outrage over the supreme court’s decision to end federal protections for abortion access and gas prices falling, Democrats had been hopeful that their endangered incumbents could win reelection.DeSantis’s old law firm received millions in Florida state funds, investigation findsRead moreIn August, Democrats took the lead on the generic congressional ballot, according to FiveThirtyEight. They held onto that lead for two and a half months – until last week.The national political environment now seems to have moved in Republicans’ favor, and Democrats are running out time to turn the tide. Gas prices started to rise again this month, although they have since started to moderate. With inflation at near record levels, the share of voters who name the economy as their top priority has increased since the summer.A New York Times/Siena College poll taken this month found that 44% of likely voters say economic concerns are the most important problem facing the country, compared to 36% who said the same in July. Just 5% of likely voters identified abortion as the most important issue right now. Voters’ renewed focus on inflation and gas prices could hurt Democrats’ chances in some key congressional races, given that Republicans consistently score better on surveys asking which party is better equipped to manage the economy.The shifting winds have prompted some Democrats to question whether they made a tactical error by focusing heavily on abortion rights in their campaign messaging. Just last week, Joe Biden promised to send a bill codifying Roe v Wade to Congress if Democrats fortify their majorities in the midterms.“I want to remind us all how we felt that day when 50 years of constitutional precedent was overturned,” Biden said last Tuesday. “If you care about the right to choose, then you got to vote.”With surveys indicating abortion rights are not top of mind for most voters, some progressive lawmakers are urging their colleagues to instead emphasize economic proposals like raising the minimum wage and creating a federal paid family leave program as they campaign for reelection.“In my view, while the abortion issue must remain on the front burner, it would be political malpractice for Democrats to ignore the state of the economy and allow Republican lies and distortions to go unanswered,” progressive senator Bernie Sanders wrote in a Guardian op-ed earlier this month.Sanders added: “Now is the time for Democrats to take the fight to the reactionary Republican party and expose their anti-worker views on the most important issues facing ordinary Americans. That is both the right thing to do from a policy perspective and good politics.”Democrats worry that the strategy pivot may be coming too late for some candidates, as alarm bells go off in battleground states across the country.In Florida, a state that Donald Trump won by just three points in 2020, Republican governor Ron DeSantis appears likely to defeat his Democratic challenger, Charlie Crist, by double digits. DeSantis, a Trump-like figure who is widely expected to run for president in 2024, has already raised at least $177m this election cycle, setting a record for a gubernatorial campaign. DeSantis’ fundraising haul and Democrats’ bleak polling numbers have led many of the party’s national organizations and donors to abandon Florida candidates, effectively declaring a preemptive defeat.In the battle for the House, Republicans are poised to recapture the majority, as districts that Biden easily won less than two years ago now appear to be up for grabs. According to Politico, a recent internal poll conducted by the campaign of Julia Brownley, whose California district went for Biden by 20 points in 2020, showed the Democratic incumbent leading her Republican opponent by just 1 point.Sean Patrick Maloney, the chair of the Democratic Congressional Campaign Committee who is overseeing the party’s efforts to maintain control of the House, now faces the risk of being ousted himself. Earlier this week, the Cook Political Report changed the rating of Maloney’s race from “lean Democrat” to “toss-up”. If Maloney cannot hold his seat, the defeat would mark the first time since 1992 that a sitting House campaign committee chair lost reelection. Republicans are gleeful at the prospect of toppling the DCCC chair, dumping several million dollars into Maloney’s district.Maloney has remained optimistic about his chances, telling CBS News, “I’m going to win this election, and when I do, they’re going to wish they had that $9 million back.”But if the national environment is as dire as it appears for Democrats, a Republican wave could soon sweep Maloney and many of his colleagues out of office.TopicsUS midterm elections 2022DemocratsRepublicansHouse of RepresentativesUS CongressJoe BidenAbortionnewsReuse this content More

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      US economy bounces back to growth despite surging inflation

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      US economy bounces back to growth despite surging inflationCommerce department estimates show 2.6% annual growth rate for third quarter, snapping two straight quarters of contraction The US economy grew at a 2.6% annual rate from July through September, snapping two straight quarters of economic contraction and overcoming punishingly high inflation and interest rates.Thursday’s estimate from the commerce department showed that the nation’s gross domestic product – the broadest gauge of economic output – grew in the third quarter after having shrunk in the first half of 2022. Stronger exports and steady consumer spending, backed by a healthy job market, helped restore growth to the world’s biggest economy.Still, the outlook for the economy has darkened. The Federal Reserve has aggressively raised interest rates five times this year to fight chronic inflation and is set to do so again next week and in December.Fed chair Jerome Powell has warned that the Fed’s hikes will bring “pain” in the form of higher unemployment and possibly a recession.The government’s latest GDP report comes as Americans, worried about inflation and the risk of recession, have begun to vote in midterm elections that will determine whether Joe Biden’s Democratic party retains control of Congress. Inflation has become a signature issue for Republican attacks on the Democrats’ stewardship of the economy.With inflation still near a 40-year high, steady price spikes have been pressuring households across the country. At the same time, rising interest rates have derailed the housing market and are likely to inflict broader damage over time. The outlook for the world economy, too, grows bleaker the longer that Russia’s war against Ukraine drags on.Last quarter’s US economic growth reversed annual declines of 1.6% from January through March and 0.6% from April through June. Consecutive quarters of declining economic output are one informal definition of a recession. But most economists have said they believe the economy skirted a recession, noting the still-resilient job market and steady spending by consumers. Most of them have expressed concern, though, that a recession is likely next year as the Fed steadily tightens credit.Preston Caldwell, head of US economics for the financial services firm Morningstar, noted that the economy’s contraction in the first half of the year was caused largely by factors that don’t reflect its underlying health and so “very likely did not constitute a genuine economic slowdown.” He pointed, for example, to a drop in business inventories, a cyclical event that tends to reverse itself over time.Higher borrowing costs have weakened the home market, in particular. The average rate on a 30-year fixed-rate mortgage, just 3.09% a year ago, is approaching 7%. Sales of existing homes have fallen for eight straight months. Construction of new homes is down nearly 8% from a year ago.Still, the economy retains pockets of strength. One is the vitally important job market. Employers have added an average of 420,000 jobs a month this year, putting 2022 on track to be the second-best year for job creation (behind 2021) in labor department records going back to 1940. The unemployment rate was 3.5% last month, matching a half-century low.Hiring has been decelerating, though. In September, the economy added 263,000 jobs – solid but the lowest total since April 2021.International events are causing further concerns. Russia’s invasion of Ukraine has disrupted trade and raised prices of energy and food, creating a crisis for poor countries. The International Monetary Fund, citing the war, this month downgraded its outlook for the world economy in 2023.TopicsUS economyEconomicsBiden administrationUS politicsnewsReuse this content More