Democrats call it the “Inflation Reduction Act.” Republicans say it’s a “tax and spending spree.” And everyone has a study they say proves one or the other. Recent bipartisan action in Congress on matters ranging from producing computer chips to expanding NATO isn’t extending to the latest economic package from Democrats. For President Joe Biden, the $739 billion plan can help lower inflation, cut the budget deficit, address climate change, and lower medical bills. That’s a message he’s trying to sell amid intense Republican criticism. GOP lawmakers counter that the 15% minimum corporate tax included in the proposal would hit U.S. factories and middle-class workers. They say energy costs will increase, while innovations in health care would decline.
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Applications for US jobless claims up again last week
WASHINGTON (AP) — More Americans applied for jobless benefits last week as the number of unemployed continues to rise modestly, though the labor market remains one of the strongest parts of the U.S. economy. Applications for jobless aid for the week ending July 30 rose by 6,000 to 260,000 from the previous week’s 254,000, the Labor Department reported Thursday. First-time applications generally reflect layoffs. The four-week average for claims, which evens out the weekly ups and downs, also rose from the previous week to 254,750. The Labor Department’s jobs report for July, due out Friday, is expected to show that employers added 250,000 jobs last month.
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Long-term mortgage rates under 5% for 1st time in 4 months
WASHINGTON (AP) — The average long-term U.S. mortgage rate fell below 5% for the first time in four months this week, just after the Federal Reserve jacked up its main borrowing rate in an aggressive effort to get inflation under control. Mortgage buyer Freddie Mac reported Thursday that the 30-year rate tumbled to 4.99% from 5.3% last week. A year ago, the rate was 2.77%. Last week, the Fed ratcheted up its main borrowing rate by three-quarters of a point, the second such increase in less than two months. Higher borrowing costs have cooled the housing market, which has been hot for years.
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Florida woman’s lawsuit says Equifax error made loan pricier
ORLANDO, Fla. (AP) — A Florida woman has sued Equifax claiming she was denied a car loan because of a 130-point mistake she says was part of a larger group of credit score errors the rating agency made this spring due to a coding problem. The class action lawsuit was filed in federal court in Atlanta on behalf of Nydia Jenkins and potentially millions of others who applied for credit during a three-week period earlier this year. The Jacksonville, Florida woman says she was forced to accept another loan that was $150 per month more than the one she was turned down for because of the error.
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The employment market shows signs of cooling amid rate hikes
NEW YORK (AP) — The employment market appears to have lost some of its sizzle, a development that could influence Federal Reserve policy and further raise concerns about an economic recession among investors. Job openings have been edging lower since April as rising inflation tightened its grip on businesses and crimped consumer spending. In June, openings fell to 10.7 million, their lowest level since September. Openings are still at a historically high level, having never exceeded 8 million in a month prior to a year ago. A tighter job market could be a signal that the economy is slowing enough for the Fed to ease up on interest rate hikes.
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US stocks end mixed amid earnings, economic updates
NEW YORK (AP) — Stocks closed mixed on Wall Street Thursday as investors continued to review the latest updates on the economy and corporate earnings. The S&P 500 slipped less than 0.1%. The Dow Jones industrials fell and the Nasdaq rose. Energy companies fell, while retailers and technology companies gained ground. Bond yields slipped. Earnings remain in focus for Wall Street. Twinkie maker Hostess and bleach maker Clorox fell after giving investors disappointing profit forecasts. New data from the Labor Department showed more Americans applied for jobless benefits last week as the number of unemployed continues to rise modestly.
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DoorDash sees record orders in Q2 as it combines with Wolt
SAN FRANCISCO (AP) — DoorDash has reported that it received a record number of customer orders in the second quarter, boosted by resilient demand and its acquisition of Finnish delivery service Wolt Enterprises. DoorDash said orders grew 23% to 426 million in the April-June period, surpassing Wall Street’s expectations. The San Francisco-based delivery company said it hasn’t yet seen much impact from inflation, and it now expects higher order volumes for the full year. DoorDash said its net loss for the quarter more than doubled as it closed the $8.1 billion acquisition of Wolt. DoorDash said stock-based compensation costs and absorbing Wolt’s 6,000 employees hurt its profits.
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Bank of England predicts recession at the end of the year
LONDON (AP) — The Bank of England has announced its biggest interest rate increase in 27 years. The central bank forecasts that the war in Ukraine will fuel further inflation and tip the U.K. economy into a prolonged recession. Soaring natural gas prices are likely to drive consumer price inflation to 13.3% in October. That’s up from 9.4% in June. That will push Britain into recession later this year. Central banks worldwide are struggling to balance efforts to control inflation while minimizing the fallout for economies that were just beginning to recover from the coronavirus pandemic.
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The S&P 500 slipped 3.23 points, or 0.1%, to 4,151.94. The Dow Jones Industrial Average dipped 85.68 points, or 0.3%, to 32,726.82. The Nasdaq rose 52.42 points, or 0.4%, to 12,720.58. The Russell 2000 index of smaller companies eased 2.47 points, or 0.1%, to 1,906.45.
The U.S. economy has now recouped the 22 million jobs lost early in the pandemic, adding 528,000 positions in July as employers clamored for workers despite a slowdown in economic growth.
The job recovery took nearly 2½ years and included a stretch in the first half of the year during which payrolls grew faster than during any other post-World War II period when the economy began contracting.
The unemployment rate dropped to 3.5%, a half-century low also seen just before the pandemic in early 2020, the Labor Department said Friday.
The labor-force participation rate—or the share of adults working or seeking a job—ticked down to 62.1% in July from 62.2% a month earlier. While the economy has recovered all the jobs it lost since February 2020, there are still 623,000 fewer people in the workforce, a factor that has pushed up wages due to a demand for workers that is well above the number of available workers.
Wage growth was stronger than economists anticipated in July, with average hourly earnings rising 0.5% from June and 5.2% from a year ago. Wage growth in June was also revised higher, indicating that earlier data overstated the magnitude of a recent deceleration in the brisk pace of wage growth.
Job gains were widespread last month. Employers in leisure and hospitality added jobs at a solid clip, as restaurants and bars continued to recover. Payrolls also grew in healthcare and professional and business services, which includes many white-collar jobs.
Industries vulnerable to the Federal Reserve’s interest-rate increases also performed well in July. Construction firms, manufacturers and finance companies all added to payrolls.
By defying expectations of an economic slowdown, the report will make it harder for the Federal Reserve to dial back the pace of rate increases at its meeting next month. The behavior of wages is particularly important to the Fed right now because of concerns that companies are raising wages because they can pass higher labor costs on to consumers as a result of the current inflationary environment.
Stocks dropped when markets opened Friday after the report.
“We’re not in a recession yet,” said Greg Daco, chief economist at EY-Parthenon, a consulting firm. “From a Fed perspective, this report says, ‘let’s keep pressing on the policy brake’ because inflation is uncomfortably high.”
Businesses have continued to hire despite two straight quarters of economic contraction, cooling consumer spending, and rising risks of a recession. Overall employment also has nearly returned to pre-pandemic levels. But demand for workers in some sectors is cooling as the economy transitions away from the red-hot expansion that followed the elimination of Covid-19-related restrictions on business activity.
Some companies such as Walmart Inc. and Robinhood Markets Inc. are cutting staff, but overall layoffs are slowly rising, according to weekly unemployment claims.
U.S. job openings remained elevated but fell in June to their lowest level in nine months and fell by 600,000 from May, according to a separate report from the Labor Department released Tuesday. Total job openings remained well above the number of unemployed workers looking for a job.
Federal Reserve officials are hopeful they can achieve a “soft landing” for the U.S. economy as they try to bring down the highest inflation in four decades without a major increase in unemployment. Fed Chairman Jerome Powell told reporters recently that the number of job openings could fall significantly without a big rise in unemployment.
So far, average weekly layoffs have ticked up only slightly, and anecdotal evidence suggests that they are primarily affecting sectors like technology and real estate, which are more sensitive to interest-rate increases. A number of tech companies, including Microsoft Corp., Meta Platforms Inc., and Netflix Inc., in recent months, have laid off employees or stalled hiring to deal with slowing growth and fallout from other macroeconomic factors.
Demand for workers is still high in sectors that haven't fully recovered from Covid-19, including leisure and hospitality, education, and healthcare.
Matt Zebatto, chief executive of Life’s WORC, a nonprofit that runs group homes, job training, and other programs for individuals with developmental disabilities in New York City and nearby counties, said that his agency’s staffing challenges are approaching crisis levels. Out of 730 positions for direct support professionals—employees who staff group homes round-the-clock—Mr. Zebatto is trying to fill more than 200.
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The organization has been hamstrung by reimbursement rates from governmental healthcare programs such as Medicaid that haven't kept up with prevailing wages in the labor market, hurting his ability to hire. In many areas, the rate is currently $15 an hour, and even with an expected inflation adjustment, the rate will remain under $16. Understaffing is a major issue, because of the level of care required by many group home residents. And when existing employees need to continuously work overtime shifts, it leads to more burnout and turnover.
“You can’t automate helping someone put on adult diapers or helping someone into a tub,” Mr. Zebatto said. “I’m grateful that someone who is working in the service industry is getting what they can get, but it makes it more difficult for us,” he said of the higher wages workers can earn working elsewhere.
Some economists expect more people to look for work as inflation weighs on household budgets.
At Life’s WORC, a nonprofit that runs group homes, the agency’s staffing challenges are approaching crisis levels.
PHOTO: LIFE'S WORCRapidly rising prices are the main reason older workers are unretiring, according to a survey by the jobs site ZipRecruiter. In the firm’s June survey, among the 21.5% of current job seekers who say that they previously retired at some point, 35.8% ranked inflation as the top reason that they have returned to the job market. Another 26.2% said that they are rejoining the workforce because they are running out of retirement savings.
Her cost of living in Austin, a city that has seen rapid growth in recent years, has gone up. She needed to find a new job to be able to cite a source of income on an apartment application. She has also had conversations with a recruiter for substitute teachers and applied for a customer service position at a phone company, but decided to take the job at the warehouse because she could start almost immediately and resolve her housing situation.
“It doesn’t pay [as] much as I feel I should make, but I also don’t want to end up homeless,” she said of her new position.
More slack in the labor market will likely lead to workers having less leverage over hours, pay, and benefits, economists say.
“We’re already seeing job-seeker confidence fall somewhat,” said Julia Pollak, chief economist at ZipRecruiter. “Just small movements for now, but the changes are all in the same direction: a fall in bargaining power and leverage.”
It's a hot summer with a labor market to match. The question is no longer "is this a recession," but rather: "Is the job market too hot for the Fed's comfort?"
The jobs slowdown economists have been expecting isn't materializing. Rather, the economy added 528,000 jobs in July — the strongest print since February, and double what economists expected.
- The unemployment rate ticked down to 3.5%, its pre-pandemic level and the lowest in nearly a half-century.
There are a ton of headlines about buzzy companies laying off workers. But the numbers show that most businesses have an insatiable demand for workers. That's just not something you see during a recession.
- That's excellent news for job-seekers and gives the Biden administration some badly needed good news to trumpet.
- "Economies in recession do not produce 528,000 jobs on a given month and have 3.5% unemployment rates," said Joe Brusuelas, chief economist of RSM US, in a note. "Claims that the economy fell into recession or is in recession fall flat and should be politely set aside."
Yes, but: The Fed's interest rate hikes are intended to slow down the economy in hopes of bringing down inflation. The new numbers suggest that, at least with regard to the labor market, it isn't working so far.
- As Harvard economist Jason Furman put it, the numbers are "uncomfortably hot."
Beyond the headline figures, Fed officials are likely to see reasons to worry about inflation pressures remaining high for the foreseeable future.
- Another worrying sign is on the labor supply front, which is moving in the wrong direction. The number of adults not in the labor force rose by 239,000, and the participation rate ticked down. At 62.1%, it remains 1.3 percent points below its pre-pandemic level.
- In the past year, wages have jumped 5.2%. Wage gains accelerated in July, however, to an even faster 5.8% annual rate.
There's a lot of data due out between now and the Fed's mid-September meeting. Yet what we've seen so far — robust job creation, a shrinking labor force, and rising wages — would imply that another 0.75 percentage point rate hike will be very much on the table.
Meanwhile, the markets already see tighter money on the way, swinging in ways that anticipated the likely Fed reaction to the new numbers, essentially doing Chair Jerome Powell's work for him.
- The two-year Treasury yield spiked around 0.2 percentage points this morning to 3.2%, a huge move. Longer-term rates surged as well, with the 10-year yield up 0.15 percentage points to 2.83%.
- Those higher rates will filter through to rates on mortgages, auto loans, and other forms of credit — meaning the good job numbers will create an immediate effect on the economy.
It's great news that jobs are plentiful, and nearly every American who wants to work is able to find it. But that implies there may be more pain to come in the form of higher rates.