Australia’s central bank raised its cash rate by 25 basis points to a decade-high of 3.35% on Tuesday and reiterated that further increases would be needed, in a more hawkish policy tilt than many had expected.
Wrapping up its February policy meeting, the Reserve Bank of Australia (RBA) also dropped previous guidance that it was not on a pre-set path and forecast inflation would only return to the top of its target range of 2-3% by mid-2025.
“The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,” governor Philip Lowe said in a statement.
Markets were surprised by the hawkish tone of the RBA which shattered any expectations of an imminent pause to the tightening campaign. The futures market has priced in a peak rate of 3.9%, implying at least two more rate hikes in March and April, compared with 3.75% before the decision.
The local dollar shot up to $0.6940, extending earlier gains. Three-year government bond yields jumped 15 bps to 3.254% while ten-year yields also surged 15 bps to 3.615%.
“The surprise was not in the decision, but rather the shift in tone and forward guidance in the Governor’s Statement,” said Gareth Aird, head of Australian economics at CBA, as he updated his call for rates to peak at 3.85% after the decision, compared with 3.35% previously.
“This change implies that the RBA Board has essentially made up their mind and intend to raise the cash rate further over coming months, if the economic data prints in line with their updated forecasts.”
Markets had expected a quarter-point move, with some risk of a bigger rise given recent inflation data had surprised on the high side. This was the ninth hike since last May, lifting rates by a total of 325 basis points.
Lowe said that core inflation had been higher than expected, with the trimmed mean gauge accelerating to 6.9% last quarter from a year ago, above the central bank’s previous forecast of 6.5%.
Inflation is expected to decline to 4.75% this year and only slow to around 3% by mid-2025, according to the RBA’s latest forecasts.
The RBA also expects economic growth to average around 1.5% over 2023 and 2024.
The interest rate increases so far, including Tuesday’s move, will add over A$900 a month in repayments to the average A$500,000 mortgage, according to RateCity, a deadweight for a population that holds A$2 trillion ($1.3 trillion) in home loans.
Housing prices fell for the ninth straight month in January, with prices in Sydney and Melbourne down about 10% from a year ago.
There are signs that consumers are finally pulling back on spending as the cost of living surges and rate increases bite. Australian retail sales recorded the biggest drop in more than two years in December.
The next big test is the December quarter wage growth report later this month, which analysts expect to be robust given the labor market is at its strongest in nearly 50 years.
“High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later,” warned Lowe as he signaled the bank’s intention to extend the tightening cycle.
After a shocking jobs report, Larry Summers, treasury secretary under Bill Clinton, said he is more encouraged the Fed can pull off a soft landing, but cautioned it is a “big mistake” to think the economy is “out of the woods” on Fareed Zakaria GPS Sunday.
Friday’s job’s report saw an astonishing 517,000 jobs added in January and unemployment tick down to 3.4%, the lowest since 1969. Economists had predicted 185,000 jobs, expecting a slower jobs market after almost a year of aggressive rate hikes from the Federal Reserve.
The Fed once hiked interest rates less aggressively this week, reflecting a sense inflation is cooling. It brings up the question: Can the United States pull off a soft landing, bringing down inflation without triggering a recession?
Summers said it “looks more possible that we’ll have a soft landing than it did a few months ago,” but he has continued fears about inflation indicators that have come back to earth, but are still too high for his liking.
“They’re still unimaginably high from the perspective of two or three years ago, and that getting the rest of the way back to target inflation may still prove to be quite difficult,” Summers said.
Zakaria asked if triggering a recession was worth it to bring down inflation, if 3 to 3.5% inflation rates could become the norm.
Summers said it’s a trade-off between short run reductions in unemployment, and permanent changes in inflation.
“The benefit we can get from pushing unemployment low is on almost all economic theories and likely not to be a permanent one,” Summers said. “But if we push inflation up and those issues become entrenched, we’re going to live with that inflation for a long time.”
The US has about 3 million people who have just stopped looking for work. Summers attributed it to older people who decided to retire earlier than normal patterns would suggest during COVID.
He said there is a “grand reassessment” of the workplace post-COVID.
“You don’t get to be a CEO if you don’t love being in the office,” Summers said. “And so CEOs want all their people to come back and be working, but lots of people like their dens better than they like their cubicles.”
Summers also had advice for President Joe Biden as a debt ceiling crisis brews in Washington.
“I would advise him that it’s not a viable strategy for the country to default on obligations,” Summers said. “That’s the stuff of banana republics, and that he’s not going to engage in any of that stuff.”
The United States has an “utterly bizarre system” where Congress votes on budgets and then separately has to authorize paying the bills incurred by those budgets, Zakaria pointed out, adding a crisis could be on the horizon because House Republicans don’t want to pay the bills until President Biden agrees to spending cuts, even though budgets were set by both parties.
Biden should insist “Congress do its job and approve the borrowing to finance the spending.”
Summers noted it only takes a few responsible Republicans to raise the debt limit.
“That some in the Republican Party may bow to the demands of the extremists does not mean that the President of the United States should do that.”
FRANKFURT, Germany — The European Union is taking another big step toward cutting its energy ties with Russia. The 27-nation bloc is banning Russian refined oil products like diesel fuel and joining the U.S. and other allies in imposing a price cap on sales to non-Western countries.
Europe’s ban takes effect Sunday following its embargo on coal and most oil from Russia. The move is meant to further slash reliance on Russian energy and payments into the Kremlin’s war chest as the anniversary of the invasion of Ukraine nears.
The newest energy sanctions have risks: Diesel prices have already jumped since the war started on Feb. 24, and there’s uncertainty about how the EU embargo and price cap by the Group of Seven major democracies will affect the market for a fuel crucial to the global economy.
Most things people buy or eat are transported at some point by trucks, which mostly run on diesel. It also powers farm equipment, city buses and industrial equipment. The higher cost of diesel is built into the price of almost everything, helping push up inflation that has made life harder for people worldwide.
Companies have already felt the pain. “We’re leaving money in the road to provide our services,” said Hans-Dieter Sedelmeier of the family-run German bus and travel company Rast Reisen.
Here are key facts about the sanctions on Russian oil products:
HOW WILL THE EMBARGO AND PRICE CAP WORK?
European importers have had months since the ban was announced in June to line up new supplies. They have already cut Russia’s share of EU imports to 27% in December from more than half before the war began.
U.S. suppliers have stepped up shipments to record levels, from 34,000 barrels a day at the start of 2022 to 237,000 barrels per day so far in January, according to S&P Global.
New refinery capacity coming on line this year in Kuwait and Saudi Arabia and next year in Oman also could help. India is another potential source.
Russia, on the other hand, would have to find new customers.
The price cap plays a key role in the embargo: It’s designed to keep Russian diesel from disappearing from the global market and causing a price spike for everyone, while still cutting into the income that supports Moscow’s military.
The cap is enforceable because it bars Western companies that largely control shipping and insurance from handling diesel priced above the limit as it heads to countries like China and India. Evasion is possible but requires setting up alternative insurance or organizing a fleet of off-the-books tankers.
The cap was set at $100 per barrel for diesel and other products made from crude, such as jet fuel, in an agreement by the G-7 countries — the U.S., U.K., Japan, Canada, France, Germany and Italy — plus the EU and Australia.
The price ceiling is $45 per barrel for other products that are made from crude but trade below the price of oil, such as fuel oil used in power station boilers and industry.
WHAT WILL HAPPEN TO DIESEL PRICES?
If the cap works as advertised, global diesel flows should reshuffle, with Europe finding new suppliers and Russian diesel finding new customers, without a major loss of supply.
In practice, markets will have to adjust, and there could be a brief spike. For one, tankers would have a longer journey to Europe from the U.S., Middle East or India than from Russia’s Baltic Sea ports, stressing shipping capacity.
“When Russian exports are constrained, for whatever reason, that would of course cause some trouble in this whole reshuffle process,” said Hedi Grati, head of fuels and refining research for Europe at S&P Global Commodity Insights. “Europe would be competing with other big importers, and that would cause upward pressure on pricing.”
WHAT DOES THE PRICE CAP ACCOMPLISH?
The hope is to reproduce the effect of the West’s $60-a-barrel price cap on Russian crude oil. Russia has said it won’t sell oil to countries observing the limit, but the cap and falling demand from a slowing global economy has meant customers in China, India and elsewhere can buy Russian oil at steep discounts, cutting into the Kremlin’s revenue.
The goal is the same with the diesel cap: “It is likely that Russia will have a harder time finding new buyers of its diesel than it did for crude oil and will be forced to accept discounts when doing so,” said Simone Tagliapietra, an energy policy expert at the Bruegel think tank in Brussels.
Once they’re in place, the caps could be tightened to increase pressure on Russia.
WHAT HAPPENS IF DIESEL GETS MORE EXPENSIVE?
Fuel prices have been a major factor behind painful inflation in Europe that has robbed consumers of purchasing power and slowed the economy.
Rast Reisen, the bus and travel company near Freiburg im Breisgau in southwestern Germany, has seen diesel fuel rise from 12%-15% of costs to 20%-25%.
Because 15 of its 25 buses are part of the regional public transport network, the company can’t automatically raise fares, and government increases so far are “a droplet on a hot stone,” said Sedelmeier, managing director for public transport.
Rast Reisen had to add a 10- to 15-euro ($11 to $16) diesel surcharge to trips to popular destinations like northern Germany’s island of Sylt or Croatia’s coast because prices spiked after catalogues were printed. Next year, prices for trips will simply be higher.
Diesel prices at the pump have swung from 1.66 euros per liter ($6.43 a gallon) to 2.14 euros per liter ($8.29 a gallon) in the course of a year.
“That is a gigantic increase,” said Christopher Schuldes, the third generation of his family to run German trucking company Schuldes Spedition.
The company has 27 diesel trucks and 50 employees in the small town of Alsbach-Haehnlein between Frankfurt and Heidelberg in southwest Germany. It already has cut fuel costs by equipping trucks with efficient engines, ensuring trucks leave fully loaded and training employees in fuel-efficient driving.
“We did all that a long time ago, long before Russia invaded Ukraine,” Schuldes said. “There’s no more room for optimization.”
To ease the extra diesel costs, the company tried negotiating higher prices with customers who have long-term contracts. Some agreed, some didn’t. Even if a contract allows prices to rise with diesel costs, there’s a two-month lag.
Regarding the embargo, “I am of two minds about it,” Schuldes said. “I have to see that the company is in good shape, and that our purchasing is as economical as possible. On the other hand — on the personal level — I say Russia must not be supported.”
The economy wasn’t supposed to add half a million jobs in January.
In fact, a consensus poll of 81 economists expected job gains to land at around 185,000, according to Refinitiv. After 11 months of aggressive rate hikes from the Federal Reserve, the experts were naturally expecting the economy’s job gains to slow as higher borrowing costs percolated through the economy, slowing investment and growth and pushing companies to pull back on spending and hiring.
And yet, even though it seemed impossible, the labor market is somehow getting tighter, said Rucha Vankudre, senior economist at business analytics firm Lightcast.
“I think pretty much all the labor economists in the country this morning are shocked,” Vankudre said Friday during a webinar after the jobs report was released. I think the question on everyone’s mind is, ‘How can the labor market keep getting stronger and stronger, and how can this keep happening while at the same time we are seeing prices come down?’”
Instead of lending credence to what was a bubbling belief in a soft landing, Friday’s jobs report only seems to beg more questions about not only the state of the economy, but also of the Federal Reserve’s attempts to hammer down high inflation.
On Wednesday, the Fed concluded its first policymaking meeting of 2023 by green-lighting a quarter-point interest rate hike — the smallest since March — as a reflection of progress in its fight to lower inflation.
The more moderate increase had been long telegraphed and came despite a hotter-than-expected December Job Openings and Labor Turnover Survey (JOLTS) report, which showed job openings grew to more than 11 million, or 1.9 available jobs for every job seeker.
Fed officials remain laser focused on wages and inflation, and are seeing some progress there, said Elizabeth Crofoot, Lightcast senior economist. Fluctuations are to be expected in any economic data, and it’s (always) important to remember that “one month does not make a trend,” especially for January data, she said.
“I think [Fed officials] are going to say, ‘Let’s continue to keep our eye on the data,’ and they’re going to hold steady until they see that inflation rate come down,” Crofoot said.
The January jobs report shouldn’t trigger a wholesale change of what Fed members are thinking or what they were planning on doing before this report, Sarah House, senior economist at Wells Fargo, told CNN.
“I think it suggests that the labor market remains still very strong, and there’s still a lot of wage pressures coming from that strong labor market that the Fed needs to contend with if it’s going to get inflation back to 2% on a sustained basis,” House said, noting the Fed’s target inflation rate.
The Covid pandemic was a tremendous shock to global economies, and the US labor force is still showing the effects of historic employment losses, sudden shifts in consumer behavior, discombobulated supply chains, and efforts to return to a state of normality.
The employment recovery since 2021 has been historically robust, with the monthly job gains larger than anything seen on record.
January’s jobs report came with added complexity, because it included annual updates to populations estimates and revisions to employer survey data.
“Now we know both [2021 and 2022] had faster job growth than we previously realized,” said University of Michigan economists Betsey Stevenson and Benny Doctor in a statement Friday. “The patterns remain the same: Job growth accelerated in the second half of 2021 before slowing in the first half of 2022 and slowing further in the second half of 2022.”
The January reports also bring with them “seasonal noise,” said Joe Brusuelas, principal and chief economist for RSM US.
“I’m advising policymakers and clients to ignore the topline number [of 517,000],” he said, noting it’s likely a function of seasonal adjustments and a reflection of swings in hiring activity and traditional cutbacks that take place from mid-December to mid-January.
“That being said, even if a downward revision takes away 200,000 or so off the top, you still are sitting at around 300,000,” he added.
“The job market is clearly too robust at this time to re-establish price stability; therefore, the Federal Reserve is going to have to not only hike by 25 basis points at its March meeting, it’s going to have to do so at the May meeting,” he predicted.
Last summer, Fed Chair Jerome Powell warned that “some pain” (aka rising unemployment) would likely be felt as a result of the Fed’s sweeping efforts to tackle inflation.
Yet Powell did not once utter the word “pain” during his press conference on Wednesday, said Mark Hamrick, senior economic analyst with Bankrate.
“If they were to put money on it, I think Las Vegas oddsmakers would be doubling down right now on the soft landing scenario — not to say that’s the base case, per se, but the chances seem to be growing,” Hamrick said.
“If anything, the global economic scenario has brightened in recent days and weeks — and we got a significant ray of sunshine with this January employment report, including all the revisions — but that’s not to say that consumers or businesses should be complacent with respect to an eventual risk of a recession,” he said.
So for now, the chances of a soft landing remain unknown.
“This is sort of a bumpy, turbulent ride to who knows where,” Crofoot said.
BRUSSELS — U.S. Treasury Secretary Janet Yellen said Friday that industrialized countries in the Group of Seven are imposing a price cap on refined Russian oil products such as diesel and kerosene, as part of a coalition that includes Australia and a tentative agreement from the European Union.
The cap follows similar price limits put on Russian oil exports, with the goal of reducing the financial resources Russian President Vladimir Putin has to wage the nearly year-long war in Ukraine.
“Today’s agreement builds on the price cap on Russian crude oil exports that we set in December and helps advance our goals of limiting Russia’s key revenue generator in funding its illegal war while promoting stable global energy markets,” Yellen said in a statement.
On Friday, EU governments tentatively agreed to set a $100-per-barrel price cap on sales of Russian diesel to coincide with an EU embargo on the fuel. Diplomats representing the 27 EU governments set the cap on Russian diesel fuel, jet fuel and gasoline ahead of a ban taking effect Sunday. It aims to reduce Russia’s income while keeping its diesel flowing to non-Western countries to avoid a global shortage that would send prices and inflation higher.
Details about the cap were provided by a G-7 statement and diplomats from three different EU member nations, who agreed to discuss the cap on the condition of anonymity.
The $100-per-barrel cap applies to Russian diesel and other fuels that sell for more than the crude oil used to make them. Officials agreed on a $45-per-barrel limit on Russian oil products that sell for less than the price of crude.
The deal follows a similar G-7 agreement to limit the price of Russian crude oil to $60 a barrel. All the price ceilings are enforced by a requirement for the world’s largely Western-based shippers and insurers to abide by sanctions and handle oil products only priced at or below the limits.
Russia has said it will not sell to countries obeying the oil cap, but because its oil is selling for less than $60 per barrel, it has kept flowing to the global market. The price caps encourage non-Western customers that have not banned Russian oil to press for discounts, while outright evasion — though possible — carries additional costs such as organizing off-the-books tankers.
The ambassadors of the 27 EU nations put forward the decision, and national governments have until early Saturday to react with a written objection. No changes to the deal were expected.
Europe has been steadily reducing its diesel supplies from Russia from around half of all imports. Diesel is key for the economy because it is used to power cars, trucks carrying goods, farm equipment and factory machinery. Prices have spiked since Russia invaded Ukraine on rebounding demand and limited refinery capacity in some places.
If the price cap works as intended and Russian diesel keeps flowing, fuel prices should not skyrocket, analysts say. Europe could get alternate supplies of diesel from the U.S., India and the Middle East, while Russia could seek new customers outside Europe.
However, the impact of the cap will be unpredictable as shippers reroute flows of the fuel to new destinations, and longer sea journeys could strain tanker capacity.
Fossil fuel sales are a key pillar of Russia’s budget, but European governments previously hesitated to cut off their purchases because the economy was heavily dependent on Russian natural gas, oil and diesel. Since the start of the war in Ukraine, that has changed.
Europe cut off Russian coal and later banned its crude oil on Dec. 5. Meanwhile, Moscow has halted most supplies of natural gas to Europe, citing technical issues and a refusal by customers to pay in Russian currency. European officials say it is retaliation for sanctions and an attempt to undermine their support for Ukraine.
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McHugh reported from Frankfurt, Germany. AP writer Josh Boak contributed to this story from Baltimore.
The US economy added an astonishing 517,000 jobs in January, showing that the labor market isn’t ready to cool down just yet.
The unemployment rate fellto 3.4% from 3.5%, hitting a level not seen since May 1969 — two months before Neil Armstrong stepped on the moon — according to new data released Friday by the Bureau of Labor Statistics.
Economists were expecting 185,000 jobs would be added last month, based on consensus estimates on Refinitiv.
“With 517,000 new jobs added in January 2023 and the unemployment rate at 3.4%, this is a blockbuster report demonstrating that the labor market is more like a bullet train,” Becky Frankiewicz, president and chief commercial officer of ManpowerGroup, said Friday.
The shockingly strong monthly jobs gain — a number that several economists cautioned was influenced by seasonal factors and is subject to future revisions — bucks a trend of five consecutive months of moderating job growth during the latter half of 2022.
“The blowout 517,000 increase in total employment was almost certainly a function of seasonal noise and traditional churn in early-year job and wage environment and exaggerates what is already a robust trend in hiring,” Joe Brusuelas, principal and chief economist with RSM US, said in a statement.
Nonetheless the juggernaut of a report may cause complications for the Federal Reserve, which has been trying to tame high inflation with higher interest rates, said Seema Shah, chief global strategist of Principal Asset Management.
“Is [Fed Chair Jerome] Powell now wondering why he didn’t push back on the loosening in financial conditions?” Shah said in a statement. “It’s difficult to see how wage pressures can possibly soften sufficiently when jobs growth is as strong as this, and it’s even more difficult to see the Fed stop raising rates and entertain ideas of rate cuts when there is such explosive economic news coming in.”
“The market is going to go through a roller coaster ride as it tries to decide if this is good or bad news. For now, though, looks like the US economy is doing absolutely fine,” she said.
Still, the report also showed that wage growth moderated on an annual basis: Average hourly earnings fell 0.4 percentage points to 4.4% year over year. Monthly wage gains held steady at 0.3%.
“It’s quite remarkable to see such a realignment of the employment picture coinciding with an easing of wage pressure,” Mark Hamrick, senior economic analyst for Bankrate, said in an interview. “I think that might be part of this report that could help keep blood pressures down among Federal Reserve officials in the near term.”
Additionally, average weekly hours jumped to 34.7 hours from 34.3, and employment in temporary help services rebounded after two months of declines, indicating further demand for labor, noted Julia Pollak, chief economist at ZipRecruiter.
The report also showed an increase in the closely watched labor force participation rate to 62.4% from 62.3%. However, the increase in the share of people working or looking to work was a function of the BLS’ annual benchmark revisions to its household survey, one of two surveys that factor in to the monthly jobs report, noted PNC chief economist Gus Faucher.
Had it not been for the revisions, that number would have been unchanged at 62.3%, he added.
“The labor market is structurally tighter post-pandemic,” he said.
Every January, the BLS makes revisions on its employment data to reflect updated population estimates and other factors.
“On net, you saw stronger hiring in 2022 than what was initially reported,” said Sarah House, chief economist with Wells Fargo, told CNN.
Average monthly job growth in 2022 was revised up from an average of 375,000 per month to 401,000, she said.
Seasonality questions aside, other trends do align to support a strong January 2023 jobs report, Bankrate’s Hamrick said.
“When you have a number of things lining up, almost like a crime scene investigation, it tends to lend some credibility to that question of believability,” he said of the surprising half-a-million-plus job gains. “What are the things that are lining up? The continued remarkably low level of jobless claims, the rise in job openings, the increase in labor force participation.”
The gains were also widespread across industries, with job growth led by leisure and hospitality, professional and business services, and health care, according to the BLS report.
Industries that shed jobs last month included motor vehicles and parts (down 6,500 jobs), utilities (down 700 jobs) and information (down 5,000 jobs).
In recent months, mass layoff announcements — especially from Big Tech — had spurred concern that the cutbacks were a harbinger of broader cutbacks to come.
That doesn’t appear to be the case, considering jobless claims have remained historically low, job openings haven’t slipped and job gains remain strong, said Giacomo Santangelo, economist at Monster.
“The news is talking about big names laying off, but we don’t really hear what happens at small firms with less than 200 employees,” he said. “What we’re seeing at Monster is a lot of firms, a majority of firms, are looking to hire.”
The glut of available jobs — there are 1.9 open positions for every one job seeker — coupled with skills that are in high demand mean that workers are likely finding jobs quickly, he said. Additionally, those laid off by large technology firms likely received generous severance packages, so not all are filing for unemployment benefits.
Friday’s report showed that the median duration of unemployment was 9.1 weeks, just a smidge above the pre-pandemic level of 8.9 weeks in February 2020.
A week that has been chock-full of economic data will be capped off Friday with the first US jobs report of 2023.
Economists estimate that 185,000 positions were likely added in January, according to Refinitiv.
That would be a considerable drop from the 504,000 jobs added in January 2022 and the 520,000 added in January 2021. It also would nearly match the 183,000 monthly average between 2010 and 2019, Bureau of Labor Statistics data shows.
And yet, while the Federal Reserve’s aggressive rate hikes have helped make a dent in inflation and resulted in slower economic activity without stark rises in unemployment, the full effects have yet to come, Fed Chair Jerome Powell warned Wednesday.
“I would say it is a good thing the disinflation we have seen so far has not come at the expense of a weaker labor market,” Powell said in a news conference following the Fed’s first monetary policymaking meeting of the year. “But I would also say the inflationary process you see under way is really at an early stage.”
America’s unemployment rate dipped back down in December to 3.5%, once again matching a 50-year low. It’s expected to tick up to 3.6% come Friday.
Layoff announcements — led by large tech firms — are picking up steam: The 43,651 job cuts announced in December jumped to 102,943 in January, according to a new data released Thursday morning by Challenger, Gray & Christmas.
Still, those spikes in cutbacks haven’t become widespread. New data released Thursday by the Labor Department showed weekly initial jobless claims fell for the fourth time in five weeks, landing at 183,000, which is the lowest weekly total since April.
“It’s a very interesting time where it’s really not clear whether what we’re seeing is a welcome, healthy rebalancing of the labor market — or a more worrying stall,” said Julia Pollak, senior economist with ZipRecruiter.
Beyond the key headline indicators of payroll gains, unemployment and average hourly earnings, here are some other areas of the jobs report that Pollak and other economists will scrutinize when the January jobs report is released Friday morning.
In December, the average working week for employees — including part-time workers — was 34.3 hours, according to BLS data.
That’s downfrom the January 2021 high of 35 hours when the average workweek balloonedas workers were scarce and other employees were forced to pick up the slack and the extra shifts, Pollak said.
“Typically, in good times, the workweek tends to be somewhere between 34.3 and 34.6 hours on average, and somehow it’s slowed all the way down to the bottom end of that range,” she said. “If it continues to deteriorate, that would suggest weakening demand for labor.”
And usually, when demand gets weak, hiring stalls and layoffs and job losses follow, she said.
As businesses recovered from the pandemic, they’ve increasingly relied on staffing agencies and contract employees. That sector started the pandemic with 2.9 million employees, plummeted to 1.9 million during the April 2020 trough, hit a record high of 3.56 million in July 2022 and has declined in each month since.
“The recent decline in temp staffing is mostly the result of a healthy recovery in full-time, in-house hiring,” Pollak said. “But if it falls much below 3 million, I think that would be a warning sign as well.”
Temporary and contract hiring can show where businesses expand and reducetheir workforce at the margins, said Sarah House, senior economist at Wells Fargo.
“The fact that we see that paring down suggests that the demand backdrop is starting to soften, and maybe they just don’t see the reason to hire and expand as much as they had previously,” House said.
The imbalance of labor demand and worker supply has been consistently highlighted by the Fed as a potential sticking point in its efforts to lower inflation. While Fed officials have noted that wages don’t appear to be driving inflation, they have expressed concern that a a low participation rate and the imbalance of worker supply and demand could cause pay to rise and, in turn, cause higher prices.
The labor force participation rate inched up two-tenths of a percentage point in December to 62.3%. Although that came following three consecutive months of declines, the percentage of people working or actively looking for work hovered between 62.1% and 62.4% throughout 2022.
Based on Wednesday’s labor turnover data, that gap grew wider in December: There were 11.01 million job openings, or 1.9 available jobs for every unemployed person that month.
“Long Covid is pretty real, and there’s a sizable share of the population who continue to suffer health effects related to Covid that are preventing them from being able to work,” said John Leer, chief economist with Morning Consult. “Then there’s ongoing child care challenges; we’ve got a lot of folks who retired early; we’ve got limited immigration not where it was pre-pandemic.”
Beyond that and the ongoing demographic shifts of Baby Boomers aging out of the workforce, there’s also possibly some “information asymmetry” that’s occurring, he said.
“There are people outside of the labor market who aren’t working, and they just simply don’t know how needed they are right now,” he said. “And I think that’s a function of being a little removed. The world has changed pretty dramatically over the last two to three years, and it’s going to be difficult to show people that the skills they possess are needed right now.”
The government’s monthly jobs report is scheduled to be released at 8:30 a.m. ET on Friday.
Muhammad Radaqat, a 27-year-old greengrocer, is worried. He doesn’t know how much an onion will cost next week, let alone how he’ll be able to afford the fuel he needs to heat his home and keep his family warm.
“All we’re being told by the government is that things are going to get worse,” Radaqat told CNN.
His anxiety reflects the mood of a nation racing to ward off an economic meltdown. Faced with a shortage of USdollars, Pakistan only has enough foreign currency in its reserves to pay for three weeks of imports.
Thousands of shipping containers are piling up at ports, and the cost of essentials like food and energy is skyrocketing. Long lines are forming at gas stations as prices swing wildly in the country of 220 million.
A nationwide power outage last month made people even more alarmed. It brought Pakistan to a standstill, plunging residents into darkness, shutting down transit networks and forcing hospitals to rely on backup generators. Officials have not identified the cause of the blackout.
Pressure is growing on Prime Minister Shehbaz Sharif’s government to unlock billions of dollars in emergency financing from the International Monetary Fund, which sent a delegation to the country this week for talks.
Pakistan’s currency, the rupee, recently droppedto new lows against the US dollar after authorities eased currency controls to meet one of the IMF’s lending conditions. The government had been resisting the changes the IMF requested, such as easing fuel subsidies, since they would cause fresh price spikes in the short term.
“We need the IMF agreement to go through as soon as possible for us to save the ship,” said Maha Rehman, an economist and the former head of analytics at the Centre for Economic Research in Pakistan.
Pakistan is experiencing what economists call a balance-of-payments crisis. The country has been spending more on trade than it has brought in, running down its stock of foreign currency and weighing on the rupee’s value. These dynamics make interest payments on debt from foreign lenderseven more expensive and push the cost of importing goods higher still, requiring even bigger drawdowns in reserves that compound the distress.
The country is also grappling with rampant price increases. The country’s central bank has hiked its key interest rate to 17% in a bid to clamp down on annual consumer inflation of almost 28%.
Someissues the country faces are specific to Pakistan. Political instability and efforts to prop up its currency, for example, have weighed on investment and exports, according to Tahir Abbas, head of investment research at Arif Habib, the country’s largest securities brokerage.
Historic floods last summer have also led to huge bills for reconstruction and aid, adding to strains on the government budget. The World Bank has estimated that at least $16 billion is needed to cope with damage and losses.
Yet global factors are making the situation worse. The economic slowdown has weighed on demand for Pakistan’s exports, while a sharp rally in the value of the US dollar last year piled pressure on countries that import significant volumes of food and fuel. Prices for these commodities had already spiked due to the pandemic and Russia’s war in Ukraine, requiring larger outlays.
The IMF has warned repeatedly that this could stress vulnerable economies. While it forecasts that emerging market and developing economies will see a modest uptick in growth this year as the dollar comes offits highs, global inflation falls and China’s reopening spurs demand, the ability to manage debt loads remains a concern.
It estimated this week that 15% of low-income countries are already in debt distress, while another 45% are at high risk of struggling to meet their obligations. An additional 25% of emerging market economies are also at high risk. Tunisia, Egypt and Ghana have all sought IMF bailouts worth billions of dollars in recent months.
“The combination of high debt levels from the pandemic, lower growth and higher borrowing costs exacerbates the vulnerability of these economies, especially those with significant near-term dollar financing needs,” the IMF wrote in its world economic outlook this week.
For Pakistan to avoid default, talks with the IMF to restart its stalled assistance program must succeed, according to investors and economists. The IMF’s delegation arrived on Tuesday and is set to stay through Feb. 9.
“Availability of the IMF loan is critical,” said Ammar Habib Khan, a senior non-resident fellow at the Atlantic Council.
But Farooq Tirmizi, the CEO of Elphinstone, a startup geared at Pakistani investors, said that even if the IMF program resumes, it won’t fix all the problems, since the main issues plaguing Pakistan are “not economic, but political, with a government in place that is not willing to make structural changes.”
Pakistan’s economic crisis was at the center of a political showdown between Sharif and his predecessor, Imran Khan, last year. Khan was ousted by a no-confidence vote in April after Sharif accused him of economic mismanagement.
The situation has remained turbulent since then. Pakistan has gone through three finance ministers in less than a year. The last two were part of the current government, raising questions about whether Sharif can hold onto power. The country is expected to hold a general election this summer.
The tumult comes as Pakistan faces a fresh wave of attacks by militants. Earlier this week, a suicide bomb ripped through a mosque in the city of Peshawar, killing at least 100 people. It was one of the deadliest attacks in the country in years.
People are suffering in the meantime. Farmers who lost cotton, date, sugar and rice crops to flooding still need help. The World Bank predicted in October that as many as nine millionPakistanis could be pushed into poverty without “decisive relief and recovery efforts to help the poor.”
High inflation is only boosting pain for households struggling to make ends meet. Food prices in January rose 43% year over year, according to data released this week.
Attention focused recently on a man in the southern province of Sindh who lost his life in a scramble to obtain a bag of subsidized flour handed out by local authorities. He was crushed to death by the crowd alongside him.
The Bank of England raised UK interest rates by half a percentage point on Thursday, moving more aggressively than its US counterpart to fight inflation.
The central bank took rates to 4% — the highest level since the depths of the global financial crisis. UK inflation eased to 10.5% in December but remains near a 41-year high.
The Bank of England said inflation was likely to fall sharply over the rest of the year, largely as past increases in energy and other prices fall out of the calculation. But it signaled significant uncertainty over its forecast.
“The labor market remains tight and domestic price and wage pressures have been stronger than expected, suggesting risks of greater persistence in underlying inflation,” the bank said in a statement.
Wholesale energy prices might also boost UK inflation more than expected, it added.
The Bank of England had to weigh up currentprice growth against the risk of recession. On Tuesday, the International Monetary Fund forecast that the United Kingdom would be the only major economy to contract this year.
The UK rate hike followed a quarter-point interest rate rise by the Federal Reserve on Wednesday. In contrast to the Bank of England, the Fed has slowed the pace of its increases as US inflation is starting to abate.
The European Central Bank is also expected to hike rates for the 20 countries that use the euro by half a percentage point later on Thursday. Eurozone inflation fell in January but at 8.5% remains way above the ECB’s 2% target.
Every year the Federal Reserve’s policymaking committee— aka the officials who decide interest rate moves — gets a slight refresh, with four of the district presidentsrotating out as official voting members and four rotating in.
The 2023 rotation brings a more dovish-leaning flock, and it comes during a critical year for the US central bank and the American economy.
This year the Federal Open Market Committee’s new voting members include the newest district president Austan Goolsbee, head of the Chicago Fed; Patrick Harker, of the Philadelphia Fed; Lorie Logan, the Dallas Fed president who started in August 2022; and Neel Kashkari, president of the Minneapolis Fed.
Rotating out as voting members are James Bullard of the St. Louis Fed; Susan Collins of the Boston Fed; Esther George, the Kansas City Fed chief who’s also retiring this month; and Loretta Mester of the Cleveland Fed.
On the whole the FOMC contingent remains largely similar, with eight of the 12 voting members continuing from 2022. The non-voting members still lend their voices and perspectives to the proceedings.
Following a stretch of seven consecutive heavy-handed interest rate hikes last year to battle rising prices, the Fed this year is expected to take a more delicate approach to its blunt monetary policy tools by downshifting on rate increases to an eventual idle.
For new Fed members, be they governors or district presidents, it can take a while to stake out their territory and potentially differ from consensus, said Ellen Meade, a Duke University economics professor who had a 25-year career at the Fed.
History has shown that the Reserve bank presidents typically tend to dissent more than board members; however, even that is a small percentage — about 7% — of votes cast, she added.
“I’m not expecting that we will see a lot of dissent in terms of votes,” she said. “I think where we might see it is how they color the data that they’re seeing.”
“Hawks” and “doves” are commonly used terms to describe Fed members’ differing monetary policy approaches. Doves tend to favor looser monetary policy and issues like low unemployment over low inflation. Hawks, however, favor robust rate hikes and keeping inflation low above all else.
“If I had to qualify them as the hawkish- or dovish-leaning, I would say that last year’s constellation was a reasonably hawkish one, and this year’s constellation is almost certainly not quite as hawkish,” Meade said.
That could change, however, if Federal Reserve Vice Chair Lael Brainard leaves to head President Joe Biden’s economic council. Brainard has been considered as leaning more dovish than Powell and others, so her departure could result in a more hawkish shift in ideology at the top of the Fed.
This particular Fed is obviously not quite as well known, Meade noted, adding that “because we have some new policymakers voting in 2023, we don’t have as much information on their policy inclinations as we did for last year’s voters.”
For any potential split to occur would take some large moves in labor market outcomes – something not seen to this point, Meade said.
“If [moderating inflation] holds up and the labor market softens but doesn’t take a very negative turn, then I think consensus is with us,” she said. “I think the question is what happens if the labor market starts to turn quickly?”
The Fed has indicated, through its economic projections, that it would tolerate unemployment rising to the 4.5% to 4.75% range. But if that grows closer or past 5% and inflation hasn’t moderated as much as desired, “then I think we’re in a place where we’re going to see more signs of disagreement.”
As it stands now, Fed officials have largely been singing from the same songbook, said Claudia Sahm, a former Fed economist and founder of Sahm Consulting.
“Whether it was voting members or non-voting members, you didn’t see a lot of pushback in public,” she said. “There was really a unified force of ‘we’re going to go big, and we’re going to go fast.’”
“The Fed is being very clear across the board, even people you would think of as more ‘dovish,’ that they do not want to let up too soon and get us into a situation where then they have to come back and do even more,” she said. “I don’t think that switching up who’s voting will matter much.”
“They’re all hawks now,” Sahm added.
The Fed also does not want to be in a position where it is lulled into a false sense of security by positive inflation data, she added. Fed Governor Christopher Waller put it bluntly in a speech last week: “We do not want to be head-faked.”
“It’s going to take months and months of good news, and frankly, we’re in store for a bumpy ride this year,” Sahm said. “It’s not like every month is going to be good news on inflation.”
2023 Federal Open Market Committee
Permanent voting members (Board of Governors):
Jerome Powell, chair
Lael Brainard, vice chair
Michael Barr, vice chair for supervision
Michelle Bowman, governor
Lisa Cook, governor
Philip Jefferson, governor
Christopher Waller, governor
Voting Districts:
John Williams, New York (permanent voting district)
*Austan Goolsbee, Chicago
*Patrick Harker, Philadelphia
*Lorie Logan, Dallas
*Neel Kashkari, Minneapolis
Non-voting districts:
Helen Mucciolo, interim first vice president, New York
Loretta Mester, Cleveland
Thomas Barkin, Richmond
Raphael Bostic, Atlanta
Mary Daly, San Francisco
James Bullard, St. Louis
Esther George, Kansas City (plans to retire this month)
ASML, a Dutch maker of semiconductor equipment, says “rules are being finalized” on export controls, amid reports that the Netherlands and Japan have joined the United States in restricting sales of some computer chip machinery to China.
“It is our understanding that steps have been made towards an agreement between governments which, to our understanding, will be focused on advanced chip manufacturing technology, including but not limited to advanced lithography tools,” the company told CNN late Friday in response to questions about export controls to China.
“Before it will come into effect it has to be detailed out and implemented into legislation which will take time.”
ASML is known for its prowess in making lithography machines, which uses light to print patterns on silicon. The firm says that step is crucial in the mass production of microchips.
The company’s response came as Bloomberg, the Wall Street Journal and the Financial Times reported over the weekend that the United States had persuaded the Netherlands and Japan to agree to curb exports of certain chipmaking equipment to China, citing anonymous sources.
A deal was reached at the White House on Friday, though it was not officially announced, partly due to “concerns by Japan and Netherlands about potential retaliation by China,” according to the Journal, which cited a person familiar with the matter.
Bloomberg reported that the deal “would extend some export controls the US adopted in October” to Dutch and Japanese companies, including ASML
(ASML), Nikon
(NINOY) and Tokyo Electron.
The Biden administration had banned Chinese companies from buying advanced chips and chipmaking equipment without a license. It also restricted the ability of American citizens to provide support for the development or production of chips at certain manufacturing facilities in China.
The White House did not immediately respond to a request for comment outside US business hours. Nikon and Tokyo Electron declined to comment.
On Saturday, Japan’s Economy and Trade Minister Yasutoshi Nishimura told reporters that he would “refrain from commenting on diplomatic negotiations.”
Asked about the three-way talks in Washington, Nishimura said “we would like to respond appropriately while taking into consideration the regulatory trends in each country.”
Because of its dominance in the market, ASML has been cited by experts as a bellwether of the growing rift between China and the West over access to advanced technology.
In recent months, the Dutch government has faced pressure from the United States to limit chip-related exports to China, particularly from ASML, according to Xiaomeng Lu, director of geo-technology at the Eurasia Group.
In its Friday statement, the company said that based on what has been said by government officials and current market conditions, it did not expect any material impact on its financial projections for 2023.
But ASML said its knowledge of the new rules was still limited, making it difficult to map out “the medium and long-term financial, organizational and global industry-wide impact of new export control rules.”
“While these rules are being finalized, ASML will continue to engage with the authorities to inform them about the potential impact of any proposed rule in order to assess the impact on the global semiconductor supply chain,” it said.
It noted that it mainly sold “mature” products to China, and its most advanced lithography technology had already been restricted since 2019.
Those machines had been prohibited from being sent to China because the Dutch government had “refused to grant it a license under US pressure,” Lu previously told CNN.
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.
New York CNN
—
The Federal Reserve is going to raise interest rates again on Wednesday. But will it be another half-point hike or just a quarter-point increase? And what about the rest of the year?
The Fed’s actions beyond this week’s meeting will depend primarily on whether inflation is truly slowing. Investors will get another clue when the January jobs report is released on Friday.
Economists predict that 185,000 jobs were added last month, a slowdown from the gain of 223,000 jobs in December and 263,000 in November. A further deceleration in the labor market would likely please the Fed, as it would show that last year’s rate hikes are successfully taking some air out of the economy.
The Fed knows it’s in a tough situation. Inflation pressures are partly fueled by wage gains for workers. In an environment where the unemployment rate is at a half-century low of 3.5%, employees have been able to command big increases in pay to keep up with rising prices of consumer goods and services.
Along those lines, average hourly earnings, a measure of wages that is also part of the monthly jobs report, are expected to increase 4.3% year-over year. That’s down from 4.6% in December and 5.1% in November.
As wage growth cools, so do price increases. The Fed’s favorite measure of inflation – the Personal Consumption Price Index or PCE – rose “just” 5% over the past 12 months through last December, compared to a 5.5% annual increase in November.
That is still uncomfortably high, but the trend is moving in the right direction.
The problem for the Fed, though, is that it may need to keep raising interest rates until there is further evidence that the labor market is cooling off enough to push the rate of inflation even lower.
Several other job market indicators continue to show that the US economy is in no serious danger of a recession just yet. The number of people filing for weekly jobless claims dipped last week to 186,000, a nine-month low. Investors will get the latest weekly initial claims numbers on Thursday.
The market will also be closely watching reports about private-sector job growth from payroll processor ADP and the Job Openings and Labor Turnover Survey (JOLTS) from the Department of Labor this week. The last JOLTS report showed that more jobs were available than expected in November.
Still, some expect that wage growth should continue to fall, which should take pressure off the Fed somewhat.
“Wage growth has been on a slowing trajectory, and we suspect that softer wage growth will be a trend in 2023 as jobs available contract,” said Tony Welch, chief investment officer at SignatureFD, a wealth management firm, in a report.
Not everyone agrees with that assessment. Organized labor has been winning bigger pay increases lately in the transportation industry. And more workers at tech and retail giants have been unionizing as of late.
“Workers will be loath to relinquish the bargaining power they perceive to have gained over the past year,” said Jason Vaillancourt, global macro strategist at Putnam, in a report.
Vaillancourt also pointed out that many consumers are still flush with cash that they saved up during the early stages of the pandemic. That could mean that inflation isn’t going away anytime soon.
And even though the pace of jobs gains may be slowing, it’s not as if economists are starting to predict monthly job losses like the US has had in previous recessions.
“Combine a strong labor market with a still substantial reserve of excess savings, and you have all the components in place to keep the Fed up at night,” Vaillancourt said.
So as long as hopes for an economic “soft landing” persist, the Fed will have to keep worrying that inflation is too high. That increases the chances the Fed could go too far with rate hikes and ultimately lead to a recession.
Wall Street is clearly buying into the “soft landing” argument. Just look at how well tech stocks have done so far this year, despite a series of high-profile layoff announcements from top Silicon Valley companies in the past few months.
The Nasdaq is up 11% so far in January, putting it on track for its best monthly performance since July.
Some argue that more tech layoffs won’t be a problem. Investors seem to be (somewhat perversely) taking the view that companies cutting costs is a good thing for profits and that revenue likely won’t be impacted in a negative way because consumers are still spending.
“A theme that can’t go unnoticed this month is how traders are rewarding firms for cutting jobs. With corporate layoffs making headlines each evening, you might think the consumer is strained. Maybe not so much. It turns out that demand is decent,” said Frank Newman, portfolio manager at Ally Invest, in a report.
But a continuation of the Nasdaq’s surge may depend a lot on how well a quartet of tech leaders do when they report fourth quarter earnings next week: Facebook and Instagram owner Meta Platforms, Apple
(AAPL), Google owner Alphabet
(GOOGL) and Amazon
(AMZN).
“A set of much weaker-than-expected reports from these firms could dent the market’s strong start to 2023,” said Daniel Berkowitz, senior investment officer for investment manager Prudent Management Associates, in a report.
So far, tech earnings season is not off to an inspiring start, with Microsoft
(MSFT), Intel
(INTC) and IBM
(IBM) all reporting weak results. But it’s important to note that that trio is part of the “old tech” guard while Apple, Amazon, Alphabet and Meta all have more rapidly growing businesses.
Tesla
(TSLA) reported strong results last week, which could be a sign of good things to come from other more dynamic tech companies.
Wednesday: Fed meeting; US ADP private sector jobs; US JOLTS; China Caixin PMI; Europe inflation; earnings from AmerisourceBergen
(ABC), Humana
(HUM), T-Mobile
(TMUS), Novartis
(NVS), Altria
(MO), Peloton
(PTON), Meta Platforms, McKesson
(MCK), MetLife
(MET) and AllState
(ALL)
Thursday: US weekly jobless claims; US productivity; BOE meeting; ECB meting; Germany trade data; earnings from Cardinal Health
(CAH), ConocoPhillips
(COP), Merck
(MRK), Bristol-Myers
(BMY), Honeywell
(HON), Eli Lilly
(LLY), Stanley Black & Decker
(SWK), Hershey
(HSY), Sirius XM
(SIRI), Penn Entertainment
(PENN), Ferrari
(RACE), Harley-Davidso
(HOG)n, Apple, Amazon, Alphabet, Ford
(F), Qualcomm
(QCOM), Starbucks
(SBUX), Gilead Sciences
(GILD), Hartford Financial
(HIG), Clorox
(CLX) and WWE
(WWE)
Friday: US jobs report; US ISM non-manufacturing (services) index; earnings from Cigna
(CI), Sanofi
(SNY), LyondellBasell
(LYB) and Regeneron
(REGN)
President Joe Biden delivered a Thursday speech to hail economic progress during his administration and to attack congressional Republicans for their proposals on the economy and the social safety net.
Some of Biden’s claims in the speech were false, misleading or lacking critical context, though others were correct. Here’s a breakdown of the 14 claims CNN fact-checked.
Touting the bipartisan infrastructure law he signed in 2021, Biden said, “Last year, we funded 700,000 major construction projects – 700,000 all across America. From highways to airports to bridges to tunnels to broadband.”
Facts First: Biden’s “700,000” figure is wildly inaccurate; it adds an extra two zeros to the correct figure Biden used in a speech last week and the White House has also used before: 7,000 projects. The White House acknowledged his misstatement later on Thursday by correcting the official transcript to say 7,000 rather than 700,000.
Biden said, “Well, here’s the deal: I put a – we put a cap, and it’s now in effect – now in effect, as of January 1 – of $2,000 a year on prescription drug costs for seniors.”
Facts First: Biden’s claims that this cap is now in effect and that it came into effect on January 1 are false. The $2,000 annual cap contained in the Inflation Reduction Act that Biden signed last year – on Medicare Part D enrollees’ out-of-pocket spending on covered prescription drugs – takes effect in 2025. The maximum may be higher than $2,000 in subsequent years, since it is tied to Medicare Part D’s per capita costs.
Asked for comment, a White House official noted that other Inflation Reduction Act health care provisions that will save Americans money did indeed come into effect on January 1, 2023.
– CNN’s Tami Luhby contributed to this item.
Criticizing former President Donald Trump over his handling of the Covid-19 pandemic, Biden said, “Back then, only 3.5 million people had been – even had their first vaccination, because the other guy and the other team didn’t think it mattered a whole lot.”
Facts First: Biden is free to criticize Trump’s vaccine rollout, but his “only 3.5 million” figure is misleading at best. As of the day Trump left office in January 2021, about 19 million people had received a first shot of a Covid-19 vaccine, according to figures published by the Centers for Disease Control and Prevention. The “3.5 million” figure Biden cited is, in reality, the number of people at the time who had received two shots to complete their primary vaccination series.
Someone could perhaps try to argue that completing a primary series is what Biden meant by “had their first vaccination” – but he used a different term, “fully vaccinated,” to refer to the roughly 230 million people in that very same group today. His contrasting language made it sound like there are 230 million people with at least two shots today versus 3.5 million people with just one shot when he took office. That isn’t true.
Biden said Republicans want to cut taxes for billionaires, “who pay virtually only 3% of their income now – 3%, they pay.”
Facts First: Biden’s “3%” claim is incorrect. For the second time in less than a week, Biden inaccurately described a 2021 finding from economists in his administration that the wealthiest 400 billionaire families paid an average of 8.2% of their income in federal individual income taxes between 2010 and 2018; after CNN inquired about Biden’s “3%” claim on Thursday, the White House published a corrected official transcript that uses “8%” instead. Also, it’s important to note that even that 8% number is contested, since it is an alternative calculation that includes unrealized capital gains that are not treated as taxable income under federal law.
“Biden’s numbers are way too low,” said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute think tank, though Gleckman also said we don’t know precisely what tax rates billionaires do pay. Gleckman wrote in an email: “In 2019, Berkeley economists Emmanuel Saez and Gabe Zucman estimated the top 400 households paid an average effective tax rate of about 23 percent in 2018. They got a lot of attention at the time because that rate was lower than the average rate of 24 percent for the bottom half of the income distribution. But it still was way more than 2 or 3, or even 8 percent.”
Biden has cited the 8% statistic in various other speeches, but unlike the administration economists who came up with it, he tends not to explain that it doesn’t describe tax rates in a conventional way. And regardless, he said “3%” in this speech and “2%” in a speech last week.
Biden cited a 2021 report from the Institute on Taxation and Economic Policy think tank that found that 55 of the country’s largest corporations had made $40 billion in profit in their previous fiscal year but not paid any federal corporate income taxes. Before touting the 15% alternative corporate minimum tax he signed into law in last year’s Inflation Reduction Act, Biden said, “The days are over when corporations are paying zero in federal taxes.”
Facts First: Biden exaggerated. The new minimum tax will reduce the number of companies that don’t pay any federal taxes, but it’s not true that the days of companies paying zero are “over.” That’s because the minimum tax, on the “book income” companies report to investors, only applies to companies with at least $1 billion in average annual income. According to the Institute on Taxation and Economic Policy, only 14 of the companies on its 2021 list of 55 non-payers reported having US pre-tax income of at least $1 billion.
In other words, there will clearly still be some large and profitable corporations paying no federal income tax even after the minimum tax takes effect this year. The exact number is not yet known.
Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy, told CNN in the fall that the new tax is “an important step forward from the status quo” and that it will raise substantial revenue, but he also said: “I wouldn’t want to assert that the minimum tax will end the phenomenon of zero-tax profitable corporations. A more accurate phrasing would be to say that the minimum tax will *help* ensure that *the most profitable* corporations pay at least some federal income tax.”
There are lots of nuances to the tax; you can read more specifics here. Asked for comment on Thursday, a White House official told CNN: “The Inflation Reduction Act ensures the wealthiest corporations pay a 15% minimum tax, precisely the corporations the President focused on during the campaign and in office. The President’s full Made in America tax plan would ensure all corporations pay a 15% minimum tax, and the President has called on Congress to pass that plan.”
Noting the big increase in the federal debt under Trump, Biden said that his administration has taken a “different path” and boasted: “As a result, the last two years – my administration – we cut the deficit by $1.7 trillion, the largest reduction in debt in American history.”
Facts First: Biden’s boast leaves out important context. It is true that the federal deficit fell by a total of $1.7 trillion under Biden in the 2021 and 2022 fiscal years, including a record $1.4 trillion drop in 2022 – but it is highly questionable how much credit Biden deserves for this reduction. Biden did not mention that the primary reason the deficit fell so substantially was that it had skyrocketed to a record high under Trump in 2020 because of bipartisan emergency pandemic relief spending, then fell as expected as the spending expired as planned. Independent analysts say Biden’s own actions, including his laws and executive orders, have had the overall effect of adding to current and projected future deficits, not reducing those deficits.
Dan White, senior director of economic research at Moody’s Analytics – an economics firm whose assessments Biden has repeatedly cited during his presidency – told CNN’s Matt Egan in October: “On net, the policies of the administration have increased the deficit, not reduced it.” The Committee for a Responsible Federal Budget, an advocacy group, wrote in September that Biden’s actions will add more than $4.8 trillion to deficits from 2021 through 2031, or $2.5 trillion if you don’t count the American Rescue Plan pandemic relief bill of 2021.
National Economic Council director Brian Deese wrote on the White House website last week that the American Rescue Plan pandemic relief bill “facilitated a strong economic recovery and enabled the responsible wind-down of emergency spending programs,” thereby reducing the deficit; David Kelly, chief global strategist at J.P. Morgan Funds, told Egan in October that the Biden administration does deserve credit for the recovery that has pushed the deficit downward. And Deese correctly noted that Biden’s signature legislation, last year’s Inflation Reduction Act, is expected to bring down deficits by more than $200 billion over the next decade.
Still, the deficit-reducing impact of that one bill is expected to be swamped by the deficit-increasing impact of various additional bills and policies Biden has approved.
Biden said, “Wages are up, and they’re growing faster than inflation. Over the past six months, inflation has gone down every month and, God willing, will continue to do that.”
Facts First: Biden’s claim that wages are up and growing faster than inflation is true if you start the calculation seven months ago; “real” wages, which take inflation into account, started rising in mid-2022 as inflation slowed. (Biden is right that inflation has declined, on an annual basis, every month for the last six months.) However, real wages are lower today than they were both a full year ago and at the beginning of Biden’s presidency in January 2021. That’s because inflation was so high in 2021 and the beginning of 2022.
There are various ways to measure real wages. Real average hourly earnings declined 1.7% between December 2021 and December 2022, while real average weekly earnings (which factors in the number of hours people worked) declined 3.1% over that period.
Biden said he was disappointed that the first bill passed by the new Republican majority in the House of Representatives “added $114 billion to the deficit.”
Facts First: Biden is correct about how the bill would affect the deficit if it became law. He accurately cited an estimate from the government’s nonpartisan Congressional Budget Office.
The bill would eliminate more than $71 billion of the $80 billion in additional funding for the Internal Revenue Service (IRS) that Biden signed into law in the Inflation Reduction Act. The Congressional Budget Office found that taking away this funding – some of which the Biden administration said will go toward increased audits of high-income individuals and large corporations – would result in a loss of nearly $186 billion in government revenue between 2023 and 2032, for a net increase to the deficit of about $114 billion.
The Republican bill has no chance of becoming law under Biden, who has vowed to veto it in the highly unlikely event it got through the Democratic-controlled Senate.
Biden said that “MAGA Republicans” in the House “want to impose a 30 percent national sales tax on everything from food, clothing, school supplies, housing, cars – a whole deal.” He said they want to do that because “they want to eliminate the income tax system.”
Facts First: This is a fair description of the Republicans’ “FairTax” bill. The bill would eliminate federal income taxes, plus the payroll tax, capital gains tax and estate tax, and replace it with a national sales tax. The bill describes a rate of 23% on the “gross payments” on a product or service, but when the tax rate is described in the way consumers are used to sales taxes being described, it’s actually right around 30%, as a pro-FairTax website acknowledges.
It is not clear how much support the bill currently has among the House Republican caucus. Notably, House Speaker Kevin McCarthy told CNN’s Manu Raju this week that he opposes the bill – though, while seeking right-wing votes for his bid for speaker in early January, he promised its supporters that it would be considered in committee. Biden wryly said in his speech, “The Republican speaker says he’s not so sure he’s for it.”
Facts First: This is true. The unemployment rate was just below 3.5% in December, the lowest figure since 1969.
The headline monthly rate, which is rounded to a single decimal place, was reported as 3.5% in December and also reported as 3.5% in three months of President Donald Trump’s tenure, in late 2019 and in early 2020. But if you look at more precise figures, December was indeed the lowest since 1969 – 3.47% – just below the figures for February 2020, January 2020 and September 2019.
Biden said that the unemployment rates for Black and Hispanic Americans are “near record lows” and that the unemployment rate for people with disabilities is “the lowest ever recorded” and the “lowest ever in history.”
The Black or African American unemployment rate was 5.7% in December, not far from the record low of 5.3% that was set in August 2019. (This data series goes back to 1972.) The rate was 9.2% in January 2021, the month Biden became president. The Hispanic or Latino unemployment rate was 4.1% in December, just above the record low of 4.0% that was set in September 2019. (This data series goes back to 1973.) The rate was 8.5% in January 2021.
The unemployment rate for people with disabilities was 5.0% in December, the lowest since the beginning of the data series in 2008. The rate was 12.0% in January 2021.
Biden said that fewer families are facing foreclosure than before the pandemic.
Facts First: Biden is correct. According to a report published by the Federal Reserve Bank of New York, about 28,500 people had new foreclosure notations on their credit reports in the third quarter of 2022, the most recent quarter for which data is available; that was down from about 71,420 people with new foreclosure notations in the fourth quarter of 2019 and 74,860 people in the first quarter of 2020.
Foreclosures plummeted in the second quarter of 2020 because of government moratoriums put in place because of the Covid-19 pandemic. Foreclosures spiked in 2022, relative to 2020-2021 levels, after the expiry of these moratoriums, but they remained very low by historical standards.
Biden said, “More American families have health insurance today than any time in American history.”
Facts First: Biden’s claim is accurate. An analysis provided to CNN by the Kaiser Family Foundation, which studies US health care, found that about 295 million US residents had health insurance in 2021, the highest on record – and Jennifer Tolbert, the foundation’s director for state health reform, told CNN this week that “I expect the number of people with insurance continued to increase in 2022.”
Tolbert noted that the number of insured residents generally rises over time because of population growth, but she added that “it is not a given” that there will be an increase in the number of insured residents every year – the number declined slightly under Trump from 2018 to 2019, for example – and that “policy changes as well as economic factors also affect these numbers.”
As CNN’s Tami Luhby has reported, sign-ups on the federal insurance exchange created by the Affordable Care Act, also known as Obamacare, have spiked nearly 50% under Biden. Biden’s 2021 American Rescue Plan pandemic relief law and then the 2022 Inflation Reduction Act temporarily boosted federal premium subsidies for exchange enrollees, and the Biden administration has also taken various other steps to get people to sign up on the exchanges. In addition, enrollment in Medicaid health insurance has increased significantly during the Covid-19 pandemic, in part because of a bipartisan 2020 law that temporarily prevented people from being disenrolled from the program.
The percentage of residents without health insurance fell to an all-time low of 8.0% in the first quarter of 2022, according to an analysis published last summer by the federal government’s Department of Health and Human Services. That meant there were 26.4 million people without health insurance, down from 48.3 million in 2010, the year Obamacare was signed into law.
Biden said, “And over the last two years, more than 10 million people have applied to start a small business. That’s more than any two years in all of recorded American history.”
Facts First: This is true. There were about 5.4 million business applications in 2021, the highest since 2005 (the first year for which the federal government released this data for a full year), and about 5.1 million business applications in 2022. Not every application turns into a real business, but the number of “high-propensity” business applications – those deemed to have a high likelihood of turning into a business with a payroll – also hit a record in 2021 and saw its second-highest total in 2022.
Trump’s last full year in office, 2020, also set a then-record for total and high-propensity applications. There are various reasons for the pandemic-era boom in entrepreneurship, which began after millions of Americans lost their jobs in early 2020. Among them: some newly unemployed workers seized the moment to start their own enterprises; Americans had extra money from stimulus bills signed by Trump and Biden; interest rates were particularly low until a series of rate hikes that began in the spring of 2022.
The Federal Reserve’s preferred inflation gauge showed prices rose at a slower pace last month, indicating further progress in the central bank’s battle with higher prices.
The Personal Consumption Expenditures price index, or PCE, rose by 5% in December, compared to a year earlier, the Commerce Department reported Thursday.
In December alone, prices rose 0.1% from November.
On a month-to-month basis, prices for goods decreased 0.7% and prices for services increased 0.5%, according to the PCE price index for December. Within those categories, food prices increased 0.2% and energy prices decreased 5.1%.
Core PCE, which doesn’t include the more volatile food and energy categories, increased by4.4% annually,downfrom November’s annual rate of 4.7%. On a monthly basis, it was up 0.3%.
Core PCE, which is now at its lowest level since October 2021,is the Fed’s favored inflation gauge as it provides a more complete picture of consumer costs and spending.
“It’s clear, continued progress on the inflation front — which is something we expected, but good to see,” Joe Davis, Vanguard’s global chief economist, told CNN. “I think you’re seeing continued softening across the entire report.”
The data showed that consumers pulled back in December, with spending falling by 0.2% from the month before. Personal income rose 0.2% last month, the smallest increase since April.
Through much of 2022, consumer spending remained robust in spite of high inflation, rising interest rates, and simmering recession fears. However, as the months dragged on, economic data suggested that consumers were running out of dry powder: Reliance on credit grew and delinquencies started to tick up, while savings levels declined.
Retail sales fell 1.1% in December, the Commerce Department reported earlier this month.
In Friday’s report, the personal saving rate as a percentage of disposable income increased to 3.4% from 2.9% in November. The savings rate is now up 1 percentage point from its September low.
The increase is “a sign that consumers are growing cautious after rapidly drawing down their savings last year,” Lydia Boussour, senior economist for EY Parthenon, said in a statement.
Separately on Friday, a closely watched measurement of consumer attitudes toward the economy showed increased confidence in January for the second consecutive month. The University of Michigan’s consumer sentiment index landed at 64.9 for January, up nearly 9% from December.
Despite the uptick, the director of the school’s Surveys of Consumers cautioned that there are “considerable downside risks” to sentiment and that two-thirds of consumers surveyed said they expect an economic downturn to occur in the next year.
Massud Ghaussy, senior analyst of Nasdaq IR Intelligence, said consumer sentiment hinges heavily on the labor market.
“The big question this year so far is, ‘is the jobs market the next shoe to fall?’” he told CNN. “The economic picture is still quite murky, and the reason why we’re seeing consumer confidence still relatively strong is because of a strong job market.”
Friday’s PCE report is the last key inflation data before the Federal Reserve meets next week for its first policymaking meeting of 2023.
Economists and investors are expecting the Fed to raise its benchmark rate by just quarter of a point, signaling another downshift following a spree of blockbuster rate hikes last year.
The Fed is not expected to pivot simply because inflation is cooling, Davis said, noting that PCE isn’t yet at the Fed’s 2% target.
The labor market, which has remained strong and tight despite inflation and interest rate hikes, remains a crucial area of focus in the Fed’s inflation fight. The latest data on employment turnover as well as job growth will be released next week.
“The labor market is clearly Exhibit A in this debate between a soft landing or a mild recession,” Davis said. “The bigger wild card is, do the modest layoffs that we’re seeing in the technology sector in particular spread to other parts of the economy?”
The Justice Department and eight states sued Google on Tuesday, accusing the company of harming competition with its dominance in the online advertising market and calling for it to be broken up.
The move marks the Biden administration’s first blockbuster antitrust case against a Big Tech company. The eight states joining the suit include California, Colorado, Connecticut, New Jersey, New York, Rhode Island, Tennessee and Virginia.
The fresh complaint significantly escalates the risks to Google emanating from Washington, where lawmakers and regulators have frequently raised concerns about the tech giant’s power but have so far failed to pass new legislation or regulations that might rein in the company or its peers.
For years, Google’s critics have claimed that the company’s extensive role in the ecosystem that enables advertisers to place ads, and for publishers to offer up digital ad space, represents a conflict of interest that Google has exploited anticompetitively.
In Tuesday’s complaint, a copy of which was viewed by CNN, the Justice Department alleged that Google actively and illegally maintained that dominance by engaging in a campaign to thwart competition. Google gobbled up rivals through anticompetitive mergers, the US government said, and bullied publishers and advertisers into using the company’s proprietary ad technology products.
As part of the lawsuit, the US government called for Google to be broken up and for the court to order the company to spin off at least its online advertising exchange and its ad server for publishers, if not more.
Google, the US government alleged, “has corrupted legitimate competition in the ad tech industry by engaging in a systematic campaign to seize control of the wide swath of high-tech tools used by publishers, advertisers, and brokers, to facilitate digital advertising. Having inserted itself into all aspects of the digital advertising marketplace, Google has used anticompetitive, exclusionary, and unlawful means to eliminate or severely diminish any threat to its dominance over digital advertising technologies.”
The suit was filed in the US District Court for the Eastern District of Virginia.
Tuesday’s suit marks the federal government’s second antitrust complaint against Google since 2020, when the Trump administration sued over Google’s alleged anticompetitive harms in search and search advertising. That case is still ongoing. Google has also been the target of antitrust litigation by state and private actors.
In a statement, Google said the DOJ suit “attempts to pick winners and losers in the highly competitive advertising technology sector.”
“DOJ is doubling down on a flawed argument that would slow innovation, raise advertising fees, and make it harder for thousands of small businesses and publishers to grow,” a Google spokesperson said, adding that a federal judge last year knocked down a claim that Google colluded with Facebook in a separate antitrust suit led by the state of Texas. That judge also ruled, however, that a number of monopolization claims in the Texas case could move forward.
The lawsuit is a frontal assault against Google’s massive, primary business of advertising. Google generated $209 billion in advertising revenue in 2021, according to its annual report, a figure representing more than 80% of its total revenue. By comparison, the next largest giant in online advertising, Facebook-parent Meta, generated $115 billion in 2021.
Third-party estimates suggest that Google and Facebook accounted for the majority of US digital ad revenues, hitting a peak around 2017, with Google taking about a third of the market. Since then, however, others including Amazon have begun encroaching on that business.
The US complaint echoes concerns that have prompted similar antitrust investigations in the United Kingdom and in the European Union.
Google not only controls the platform publishers use to sell online ad inventory, the Justice Department alleged Tuesday, but also the advertising tools marketers use to claim that inventory and the exchange that facilitates those transactions.
“Google’s pervasive power over the entire ad tech industry has been questioned by its own digital advertising executives,” the complaint said, “at least one of whom aptly begged the question: ‘[I]s there a deeper issue with us owning the platform, the exchange, and a huge network? The analogy would be if Goldman or Citibank owned the NYSE.’”
Tuesday’s complaint marks an opening salvo against Big Tech by DOJ’s antitrust chief, Jonathan Kanter. Kanter has spent months laying the groundwork for a broader offensive against the tech industry’s most dominant companies, reflecting commitments by President Joe Biden and others in the US government to hold powerful firms accountable. Under Kanter, Justice Department antitrust officials have pushed to bring more cases to trial as well as to prosecute cases involving unconventional legal theories.
In 2020, House lawmakers released a 450-page report finding that Google, along with Amazon, Apple and Facebook, hold “monopoly power” in key business segments. The report was the result of a 16-month investigation in which congressional staff reviewed corporate documents and interviewed the tech industry’s many customers and rivals. It concluded, among other things, that Google was uniquely positioned to benefit from its powerful role in the online ad industry.
“With a sizable share in the ad exchange market and the ad intermediary market, and as a leading supplier of ad space, Google simultaneously acts on behalf of publishers and advertisers, while also trading for itself,” the report said.
Business activity across the 20 countries that use the euro expanded in January for the first time in six months, according to data published Tuesday, providing fresh evidence that Europe’s economy could confound expectations and dodge a recession this year.
An initial reading of the eurozone’s Purchasing Managers’ Index, which tracks activity in the manufacturing and service sectors, rose to 50.2 in January from 49.3 in December, indicating the first expansion since June. A reading above 50 represents growth.
The return to modest growth was helped by falling energy prices and an easing of supply chain stress, which helped temper rising input costs for producers.
The uptick was accompanied by a sharp improvement in optimism about the year ahead, as the recent reopening of China’s economy following the lifting of Covid restrictions helped push confidence to its highest level since last May. Growing optimism in Europe that China’s consumers will start spending again was reflected in Swiss watch maker Swatch
(SWGAF)’s prediction Tuesday of record sales for 2023.
“A steadying of the eurozone economy at the start of the year adds to evidence that the region might escape recession,” said Chris Williamson, chief business economist at S&P Global Market Intelligence, the company that publishes the survey of executives at private sector companies.
Williamson added, however, that a “renewed slide into contraction” should not be ruled out as borrowing costs rise off the back of interest rate hikes by the European Central Bank. But any downturn “is likely to be far less severe than previously feared,” he said.
Berenberg chief economist Holger Schmieding said in a research note that “the still-low level of consumer confidence and the lagged impact of ECB rate hikes still point to a slight contraction in eurozone GDP near-term before the recovery can start to take hold.”
Consumer sentiment in Germany, the region’s biggest economy, looks set to improve for a fourth consecutive month in February from a very low base, according to a separate survey published by GfK Tuesday.
The picture looks far less promising in the United Kingdom, however, where January’s PMI survey showed the steepest decline in business activity since the national Covid lockdown two years ago, as higher interest rates and low consumer confidence depressed activity in the dominant services sector.
The initial reading fell to 47.8 in January, from 49 in December, to remain in a state of contraction for the sixth consecutive month. The UK survey is conducted in conjunction with the Chartered Institute of Procurement & Supply.
“Weaker-than-expected PMI numbers in January underscore the risk of the UK slipping into recession,” Williamson said. “Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year,” he added.
The UK economy lost more working days to strikes between June and November 2022 than in any six-month period over the previous 30 years, according to data published last week by Britain’s Office for National Statistics.
Williamson said Tuesday’sdata reflected not only short-term hits to growth, such as strike action, but “ongoing damage to the economy from longer-term structural issues such as labor shortages and trade woes linked to Brexit.”
Despite the gloomy start to the year, UK business expectations for the year ahead hit their highest level for eight months, driven by hopes of an improving global economic backdrop and cooling inflation.
Separate data published by the ONS on Tuesday showed that UK government borrowing hit £27.4 billion ($33.7 billion) in December, the highest figure for that month since records began in 1993. This was driven by a sharp increase in spending on support for household energy bills, as well as the soaring cost of paying interest on government debt.
In the fervor-filled days leading up to the November 16 launch of the long-awaited Artemis I mission, an uncrewed trip around the moon, some industry insiders admitted to having conflicting emotions about the event.
On one hand, there was the thrill of watching NASA take its first steps toward eventually getting humans back to the lunar surface; on the other, a shadow cast by the long and costly process it took to get there.
“I have mixed feelings, though I hope that we have a successful mission,” former NASA astronaut Leroy Chiao said in an opinion roundtable interview with The New York Times. “It is always exciting to see a new vehicle fly. For perspective, we went from creating NASA to landing humans on the moon in just under 11 years. This program has, in one version or another, been ongoing since 2004.”
There have been numerous delays with the development of the rocket at the center of the Artemis I mission: NASA’s Space Launch System (SLS), the most powerful rocket ever flown — and one of the most controversial. The towering launch vehicle was originally expected to take flight in 2016. And the decade-plus that the rocket was in development sparked years of blistering criticism targeted toward the space agency and Boeing, which holds the primary contract for the SLS rocket’s core.
NASA’s Office of Inspector General (OIG) repeatedly called out what it referred to as Boeing’s “poor performance,” as a contributing factor in the billions of dollars in cost overruns and schedule delays that plagued SLS.
“Cost increases and schedule delays of Core Stage development can be traced largely to management, technical, and infrastructure issues driven by Boeing’s poor performance,” one 2018 report from NASA’s OIG, the first in a series of audits the OIG completed surrounding NASA’s management of the SLS program, read. And a report in 2020 laid out similar grievances.
For its part, Boeing has pushed back on the criticism, pointing to rigorous testing requirements and the overall success of the program. The OIG report also included correspondence from NASA, which noted in 2018 that it “had already recognized the opportunity to improve contract performance management” and agreed with the report’s recommendations.
Despite all the heated debate that has followed SLS, by all accounts, the rocket is here to stay. And officials at NASA and Boeing said its first launch two months ago was practically flawless.
“I worked over 50 Space Shuttle launches,” Boeing SLS program manager John Shannon told CNN by phone. “And I don’t ever remember a launch that was as clean as that one was, which for a first-time rocket — especially one that had been through as much as this one through all the testing — really put an exclamation point on how reliable and robust this vehicle really is.”
The Artemis program manager at NASA, Mike Sarafin, also said during a post-launch news conference that the rocket “performed spot-on.”
But with its complicated history and its hefty price tag, SLS could still face detractors in the years to come.
Many have questioned why SLS needs to exist at all. With the estimated cost per launch standing at more than $4 billion for the first four Artemis missions, it’s possible commercial rockets, like the massive Mars rocket SpaceX is building, could get the job done more efficiently, as the chief of space policy at the nonprofit exploration advocacy group Planetary Society, Casey Dreier, recently observed in an article laying out both sides of the SLS argument.
(NASA Administrator Bill Nelson noted that the $4 billion per-launch cost estimate includes development costs that the space agency hopes will be amortized over the course of 10 or more missions.)
Boeing was selected in 2012 to build SLS’s “core stage,” which is the hulking orange fuselage that houses most of the massive engines that give the rocket its first burst of power at liftoff.
Though more than 1,000 companies were involved with designing and building SLS, Boeing’s work involved the largest and most expensive portion of the rocket.
That process began over a decade ago, and when the Artemis program was established in 2019, it gave the rocket its purpose: return humans to the moon, establish a permanent lunar outpost, and, eventually, pave the path toward getting humans to Mars.
But the SLS is no longer the only rocket involved in the program. NASA gave SpaceX a significant role in 2021, giving the company a fixed-price contract for use of its Mars rocket as the vehicle that will ferry astronauts to the lunar surface after they leave Earth and travel to the moon’s orbit on SLS. SpaceX’s forthcoming rocket, called Starship, is also intended to be capable of completing a crewed mission to the moon or Mars on its own. (Starship, it should be noted, is still in the development phases and has not yet been tested in orbit.)
Boeing has repeatedly argued that SLS is essential and capable of performing tasks that other rockets cannot.
“The bottom line is there’s nothing else like the SLS because it was built from the ground up to be human rated,” Shannon said. “It is the only vehicle that can take the Orion spacecraft and the service module to the moon. And that’s the purpose-built design — to take large hardware and humans to cislunar space, and nothing else exists that can do that.”
Starship, meanwhile, is not tailored solely to NASA’s specific lunar goals. SpaceX CEO Elon Musk has talked for more than a decade about his desire to get humans to Mars. More recently, he has said Starship could also be used to house giant space telescopes.
Yet, another reason critics remain skeptical of SLS is because of its origins. The rocket’s conception can be traced back to NASA’s Constellation program, which was a plan to return to the moon mapped out under former President George W. Bush that was later canceled.
But the SLS has survived. Many observers have suggested a big reason was the desire to maintain space industry jobs in certain Congressional districts and to beef up aerospace supply chains.
Much of the criticism levied against SLS, however, has focused on the actual process of getting the rocket built.
At one point in 2019, former NASA administrator Jim Bridenstine considered sidelining the SLS rocket entirely, citing frustrations with the delays.
“At the end of the day, the contractors had an obligation to deliver what NASA had contracted for them to deliver,” Bridenstine told CNN by phone last month. “And I was frustrated like most of America.”
Still, Bridenstine said, when his office reviewed the matter, it found “there were no options that were going to cost less money or take less time than just finishing the SLS” — and the rocket was never ultimately sidelined. (Bridenstine noted he was also publicly critical of delayed projects led by SpaceX and others.)
The SLS rocket ended up flying its first launch more than six years later than originally intended. NASA had allocated $6.2 billion to the SLS program as of 2018, but that price tag more than tripled to $23 billion as of 2022, according to an analysis by the Planetary Society.
Those escalating costs can be traced back to the type of contracts that NASA signed with Boeing and its other major suppliers for SLS. It’s called cost-plus, which puts the financial burden on NASA when projects face cost overruns while still offering contractors extra payments, or award fees.
In testimony before the Senate Appropriations Subcommittee on Science last year, current NASA Administrator Bill Nelson criticized the cost-plus contracting method, calling it a “plague.”
More in vogue are “fixed-price” contracts, which have a firm price cap, like the kind NASA gave to Boeing and SpaceX for its Commercial Crew Program.
In an interview with CNN in December, however, Nelson stood by cost-plus contracting for SLS and Orion, the vehicle that is designed to carry astronauts and rides atop the rocket to space. He said that without that type of contract, in his view, NASA’s private-sector contractors simply wouldn’t be willing to take on a rocket designed for such a specific purpose and exploring deep space. Building a rocket as specific and technically complex as SLS isn’t a risk many private-sector companies are anxious to take on, he noted.
“You really have difficulty in the development of a new and very exquisite spacecraft … on a fixed-price contract,” he said.
“That industry is just not willing to accept that kind of thing, with the exception of the landers,” he added, referring to two other branches of the Artemis program: robotic landers that will deliver cargo to the moon’s surface and SpaceX’s $2.9 billion lunar lander contract. Both of those will use fixed-price — often referred to as “commercial” — contracts.
“And even there, they’re getting a considerable investment by the federal government,” Nelson said.
Still, government watchdogs have not pulled punches when assessing these cost-plus contracts and Boeing’s role.
“We did notice very poor contractor performance on Boeing’s part. There’s poor planning and poor execution,” NASA Inspector General Paul Martin said during testimony before the House’s Subcommittee on Space and Aeronautics last year. “We saw that the cost-plus contracts that NASA had been using…worked to the contractor’s — rather than NASA’s — advantage.”
Shannon, the Boeing executive, acknowledged in an interview that Boeing and SLS have faced loud detractors, but he said that the value of the drawn out development and testing program would become evident as SLS flies.
“I am extremely proud that NASA — even though there were significant schedule pressures — they could set up a test program that was incredibly comprehensive,” he said. “The Boeing team worked through that test process and hit every mark on it. And you see the results. You see a vehicle that is not just visually spectacular, but its performance was spectacular. And it really put us on the road to be able to do lunar exploration again, which is something that’s very important in this country.”
But the rocket is still facing criticism. During a Congressional hearing with the House’s Science, Space, and Technology Committee in March 2022, NASA’s Inspector General said that current cost estimates for SLS were “unsustainable,” gauging that the space agency will have spent $93 billion on the Artemis program from 2012 through September 2025.
Martin, the NASA inspector general, specifically pointed to Boeing as one of the contractors that would need to find “efficiencies” to bring down those costs as the Artemis program moves forward.
In a December 7 statement to CNN, Boeing once again defended SLS and its price point.
“Boeing is and has been committed to improving our processes — both while the program was in its developmental stage and now as it transitions to an operational phase,” the statement read, noting the company already implemented “lessons learned” from building the first rocket to “drive efficiencies from a cost and schedule perspective” for future SLS rockets.
“When adjusted for inflation, NASA has developed SLS for a quarter of the cost of the Saturn V and half the cost of the Space Shuttle,” the statement noted. “These programs have also been essential to investing in the NASA centers, workforce and test facilities that are used by a broad range of civil and commercial partners across NASA and industry.”
The successful launch of SLS was a welcome winning moment for Boeing. Over the past few years, the company has been mired in controversy, including ongoing delays and myriad issues with Starliner, a spacecraft built for NASA’s Commercial Crew Program, and scandal after scandal plaguing its airplane division.
Now that the Artemis I mission has returned safely home, NASA and Boeing can turn to preparing more of the gargantuan SLS rockets to launch even loftier missions.
SLS is slated to launch the Artemis II mission, which will take four astronauts on a journey around the moon, in 2024. From there, SLS will be the backbone of the Artemis III mission that will return humans to the lunar surface for the first time in five decades and a series of increasingly complex missions as NASA works to create its permanent lunar outpost.
Shannon, the Boeing SLS program manager, told CNN that construction of the next two SLS rocket cores is well underway, with the booster for Artemis II on track to be finished in April — more than a year before the mission is scheduled to take off. All of the “major components” for a third SLS rocket are also completed, Shannon added.
For the third SLS core and beyond, Boeing is also moving final assembly to new facilities Florida, freeing up space at its manufacturing facilities to increase production, which may help drive down costs.
Shannon declined to share a specific price point for the new rockets or share any internal pricing goals, though NASA is expected to sign new contracts for the rockets that will launch the Artemis V mission and beyond, which could significantly change the price per launch.
Nelson also told CNN in December that NASA “will be making improvements, and we will find cost savings where we can,” such as with the decision to use commercial contracts for other vehicles under the Artemis program umbrella.
How and whether those contracts bear out remain to be seen: SpaceX needs to get its Starship rocket flying, a massive space station called Gateway needs to come to fruition, and at least some of the robotic lunar landers designed to carry cargo to the moon will need to prove their effectiveness. It’s also not yet clear whether those contracts will result in enough cost savings for the critics of SLS, including NASA’s OIG, to consider the Artemis program sustainable.
As for SLS, Nelson also told reporters December 11, just after the conclusion of the Artemis I mission, that he had every reason to expect that lawmakers would continue to fund the rocket and NASA’s broader moon program.
“I’m not worried about the support from the Congress,” Nelson said.
And Bridenstine, Nelson’s predecessor who has been publicly critical SLS, said that he ultimately stands by SLS and points out that, controversies aside, it does have rare bipartisan support from its bankrollers.
“We are in a spot now where this is going to be successful,” Bridenstine said last month, recalling when he first realized the Artemis program had support from the right and left. “All of America is going to be proud of this program. And yes, there are going to be differences. People are gonna say well, you should go all commercial and drop SLS…but at the end of the day, what we have to do is we have to bring together all of the things that are the best programs that we can get for America and use them to go to the moon.”
After the United States hit its debt ceiling on Thursday, the Treasury Department is now undertaking “extraordinary measures” to keep paying the government’s bills.
A default could be catastrophic, causing “irreparable harm to the US economy, the livelihoods of all Americans and global financial stability,” Treasury Secretary Janet Yellen has warned.
“If that happened, our borrowing costs would increase and every American would see that their borrowing costs would increase as well,” Yellen said. “On top of that, a failure to make payments that are due, whether it’s the bondholders or to Social Security recipients or to our military, would undoubtedly cause a recession in the US economy and could cause a global financial crisis.”
She added: “It would certainly undermine the role of the dollar as a reserve currency that is used in transactions all over the world. And Americans — many people — would lose their jobs and certainly their borrowing costs would rise.”
Dire warnings of debt ceiling trouble aren’t new. Federal lawmakers have reached agreements in the past, and this Congress has some time — until at least early June, according to Yellen’s public estimates — to reach an agreement on whether to raise or suspend the debt limit.
Many economists say they expect an agreement will be reached. However, given the current “extremely fractious political environment,” it could be a long process that would contribute to “flare-ups” in financial market volatility, Moody’s Investors Service said in a note Thursday.
So what happens to the economy in a worst-case scenario of default?
It’s an understandable question with an unsatisfying answer, said Michael Pugliese, vice president and economist with Wells Fargo’s corporate and investment bank.
“The honest truth is, no one knows,” he said. “A widespread default by the US government is not something we’ve ever experienced and not something we’ve ever even come close to experiencing.”
While a default isn’t something that can be modeled in the way a more historically common economic event such as a recession can be, the events of 2011 could lend some perspective as to what would happen if the debt ceiling drama turns into a debacle, said Gregory Daco, chief economist at EY-Parthenon.
“2011 was the first time in a long time that we came close to a debt ceiling breach,” he said. “And that was a time when there was a lot of political fragmentation and there was a strong desire to essentially attach spending cuts to any debt ceiling increase.”
The current environment includes similar brinksmanship and desires to attach spending cuts, he said.
But some fear this fight may be tougher than those in the past, a concern reinforced by the fact it took 15 ballots to elect the Speaker of the House in what is normally the easiest vote taken by a new Congress.
The economy nearly 13 years ago was different, as well.
At the time, the Fed was in an easy monetary policy mode and the economy in a weaker position, as it was still recovering from the Great Recession of 2008, Pugliese said. Unemployment was north of 9% in July 2011.
That same year, Treasury projected the “X date” — the date on which it would be unable to pay its obligations on time — would fall on August 2, 2011. That ultimately was the date when Congress passed, and President Barack Obama enacted, a law increasing the ceiling.
The actual economic impact of the debt ceiling run-up in 2011 is hard to isolate and quantify, Pugliese said, noting how the sluggish US economic recovery also experienced spillover effects from global events, notably Europe’s sovereign debt crisis.
Still, there were some indications that the protracted congressional battle contributed to a shake-up in the economy then, he said. Real GDP growth was a weak -0.1% on a quarter-over-quarter annualized basis in the third quarter of 2011. Financial markets were roiled, consumer confidence weakened, the US economic policy uncertainty index set a new high and Standard & Poor’scredit rating agency downgraded the United States to AA+ from AAA.
“I think you would be hard pressed to say [the debt ceiling debacle] was a positive thing,” he said. “I think of it more as one other hurdle among a lot of other hurdles for the economy as it emerged from 9% unemployment at the time.”
This time, if the X date were to come without a resolution, there is speculation that the Treasury could prioritize principal and interest payments to prevent a technical default, Pugliese said. There are potentially other “break the glass” options from the Treasury and Federal Reserve, but those are untested and short-term solutions, he added.
“Someone, somewhere is going to get shortchanged if the government doesn’t have all of its money, whether that’s Social Security beneficiaries, defense contractors, civil service employees, veterans, [etc.],” he said.
Adding to the uncertainty is the current economic climate, Daco said.
“We are going into this delicate period at a time when the US economy is clearly slowing down and at a time when the global economic backdrop is also weakening … so the economic environment against which this debt ceiling debacle is unfolding is one of increased economic softening.”
While a self-inflicted recession would be likely after the point when an X date is hit, some upheaval could come sooner, Daco said.
“Financial markets and private sector actors tend to react ahead of that date,” he said. “If there is the anticipation that we will get very close to that drop-dead date, then financial market volatility generally tends to increase, stock prices tend to react adversely.”
A Treasury default would undermine the global financial system, said Louise Sheiner, policy director at the Hutchins Center on Fiscal and Monetary Policy and former senior economist with the Fed and the Council of Economic Advisers.
“If Treasuries become something that people are worried about holding, then that has ripple effects throughout capital markets throughout the world, in ways that are really difficult to predict,” she said.
Considering the potential consequences in the United States and abroad, Sheiner believes the debt ceiling will be lifted or suspended — eventually.
“There’s no other way around it,” she said. “There’s no way that Congress is going to cut spending 20% in the middle of the year. It would plunge the economy into a recession. It would be a terrible policy.”
She added: “If you care about the long-term debt, you have to actually change different laws, Social Security law, Medicare, or the tax law … you want to do that in the appropriate process, you want to do it well thought out. It’s not the kind of thing that should be done under duress.”
CNN’s Maegan Vazquez, Matt Egan and Tami Luhby contributed to this report.
“The San Diego Field Office has recently noticed an increase in the number of eggs intercepted at our ports of entry,” wrote De La O in the Tuesday tweet. “As a reminder, uncooked eggs are prohibited entry from Mexico into the U.S. Failure to declare agriculture items can result in penalties of up to $10,000.”
Bringing uncooked eggs from Mexico into the US is illegal because of the risk of bird flu and Newcastle disease, a contagious virus that affects birds, according to Customs and Border Protection.
In a statement emailed to CNN, Customs and Border Protection public affairs specialist Gerrelaine Alcordo attributed the rise in attempted egg smuggling to the spiking cost of eggs in the US. A massive outbreak of deadly avian flu among American chicken flocks has caused egg prices to skyrocket, climbing 11.1% from November to December and 59.9% annually, according to the Bureau of Labor Statistics.
The increase has been reported at the Tijuana-San Diego crossing as well as “other southwest border locations,” Alcordo said.
For the most part, travelers bringing eggs have declared the eggs while crossing the border. “When that happens the person can abandon the product without consequence,” said Alcordo. “CBP agriculture specialists will collect and then then destroy the eggs (and other prohibited food/ag products) as is the routine course of action.”
In a few incidents, travelers did not declare their eggs and the products were discovered during inspection. In those cases, the eggs were seized and the travelers received a $300 penalties, Alcordo explained.
“Penalties can be higher for repeat offenders or commercial size imports,” he added.
Alcordo emphasized the importance of declaring all food and agricultural products when traveling.
“While many items may be permissible, it’s best to declare them to avoid possible fines and penalties if they are deemed prohibited,” he said. “If they are declared and deemed prohibited, they can be abandoned without consequence. If they are undeclared and then discovered during an exam the traveler will be subject to penalties.”
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
New York CNN
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The largest six banks in the United States have been given until July to show the Federal Reserve what effects disastrous climate change scenarios couldhave on their bottom lines.
Noting the risks could be “material,” the Fed said the banks will have to show how their finances fare under a number of climate stress tests, including heat waves, wildfires, floods and droughts, according to details of a new Fed pilot program released on Tuesday.
“The pilot exercise includes physical risk scenarios with different levels of severity affecting residential and commercial real estate portfolios in the Northeastern United States and directs each bank to consider the impact of additional physical risk shocks for their real estate portfolios in another region of the country,” wrote the Fed.
The Federal Reserve first announced the pilot program in September, noting that Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo would participate.
Climate activists said that the project was long overdue (Federal Reserve Chair Jerome Powell has been questioned about it multiple times over the last year), and that other central banks are far ahead of the Fed on climate risk assessments. The Bank of England ran a similar exercise in 2021.
They also said the proposal lacked any real teeth. In its announcement the Federal Reserve stressed that the exercise “is exploratory in nature and does not have capital consequences.” It also said that it would not publish individual banks’ results.
San Francisco Federal Reserve President Mary Daly told CNN in October Thursday that this was a learning and exploratory exercise for the Federal Reserve. It would be “incredibly premature to jump to the conclusion that any new policies or programs would come out of it,” she said.
The other side: Critics of the pilot program have argued that the Federal Reserve was overstepping its boundaries and that they might soon begin to enforce financial penalties.
“The Fed’s new ‘pilot’ program is the first step toward pressuring banks into limiting loans to and investments in traditional energy companies and other disfavored carbon-emitting sectors,” wrote former Republican Senator Pat Toomey, then a ranking member of the Senate Banking Committee. “The real purpose of this program is to ultimately produce new regulatory requirements.”
Powell said last week that the central bank would not become a “climate policymaker.”
“Today, some analysts ask whether incorporating into bank supervision the perceived risks associated with climate change is appropriate, wise, and consistent with our existing mandates,” Powell said last Tuesday. “In my view, the Fed does have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision. The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change.”
The discovery, movement and use of oil has played an outsized role in shaping geopolitics over the past century and a half. But over the next 50 years, global interaction and wealth are more likely to be influenced by microchips, Intel CEO Pat Gelsinger told CNN Tuesday.
“Where the technology supply chains are, and where semiconductors are built, is more important for the next five decades,” Gelsinger said in an interview with CNN’s Julia Chatterley at the World Economic Forum in Davos, Switzerland.
Intel (INTC) is betting those predictions prove true. The company announcedin 2021 it would invest $20 billion to build two new US chipmaking facilities, as well as up to $90 billion in new European factories, aimed at reasserting its position as the leader of the semiconductor industry, reports my colleague Clare Duffy.
Gelsinger said the company’s investment in new manufacturing facilities in the United States, Europe and elsewhere is important not only for the company’s future, but for the “globalization of the most critical resource to the future of the world.”
“We need this geographically balanced, resilient supply chain,” he said.
The announcements also came amid concerns about the concentration of manufacturing for chips, in Asia, particularly China and Taiwan, during the Covid-19 pandemic and as geopolitical tensions grew. Issues in the chip supply chain in recent years have caused shortages and shipping delays of everything from desktop computers and iPhones to cars.
“If we’ve learned one thing from the Covid crisis and this multi-year journey that we’ve been on it’s we need resilience in our supply chains,” Gelsinger said, adding that Intel’s manufacturing investments are aimed at “leveling that playing field so that good investment decisions can be made.”
The years following the peak of the Covid pandemic have not been good for wealth equality.
The world’s wealthiest residents have been getting far richer, far faster than everyone else over the past two years, reports my colleague Tami Luhby.
The fortune of the 1% soared by $26 trillion during that period, while the bottom 99% only saw their net worth rise by $16 trillion, according to Oxfam’s annual inequality report released Sunday.
And the wealth accumulation of the super-rich accelerated during the pandemic. Looking over the past decade, they netted just half of all the new wealth created, compared to two-thirds during the last few years.
Meanwhile, many of the less fortunate are struggling. Some 1.7 billion workers live in countries where inflation is outpacing wages. And poverty reduction likely stalled last year after the number of global poor skyrocketed in 2020.
“While ordinary people are making daily sacrifices on essentials like food, the super-rich have outdone even their wildest dreams,” said Gabriela Bucher, executive director of Oxfam International.
“Just two years in, this decade is shaping up to be the best yet for billionaires — a roaring ’20s boom for the world’s richest,” she said.
