We blew it.
That is the queasy feeling I have as I watch borrowing costs surge, housing starts fall, and politicians rush to subsidize fossil-fuel consumption. Americans had a decade-plus in which interest rates were low and millions of workers were unemployed or underemployed. We could have made investments that would have benefited all of us. And we wasted that chance.
This period of unusually low interest rates, which lasted from the 2008 global financial crisis until now, was horrible in many ways. Too many people were unemployed for too long, and too many found themselves trapped in dead-end, no-security jobs while the cost of living climbed to astronomical levels. But it was an opportunity too. Borrowing was cheap, and the government could have built and built and built without crowding out private investment or overheating the economy.
Instead, we slogged through the recovery from the Great Recession, needing more fiscal stimulus that never arrived. We wasted $2 trillion on tax cuts for rich people. We made some infrastructure improvements, but mostly delayed and dithered. While we did so, a catastrophic housing shortage developed, driving up the price of everything else. Our cities crumbled and roads buckled. The climate crisis intensified as we remained in fealty to fossil fuels that are bleeding families dry and destroying the planet.
Now we are left trying to fix these problems with higher labor costs, higher borrowing costs, higher real-estate costs, and higher material costs, at a time when every additional dollar of government spending risks stoking inflation and Uncle Sam is competing with the private sector for every hire.
Americans missed the opportunity to make progress in at least three major areas. First, infrastructure. We could have fixed what we have and built what we needed when interest rates were at scratch and the jobless rate for construction workers was 10 or 15 or even 20 percent, as left-of-center politicians suggested over and over and over again. Congress finally passed a compromise bill last year, but the cost of construction has swelled nearly 30 percent since 2019, and the legislation hardly meets the enormous scale of the challenge.
Take the number of bridges—just bridges—that need repair. Roughly 46,000 of them out of the 617,000 across the country are structurally deficient. And we face similar problems with our electric grid, airports, water and wastewater systems, roads, highways, and mass-transit systems. Amtrak’s Northeast Corridor is falling apart, as is the New York City subway, and fixing them will cost millions more than it would have a decade ago.
We also failed to fill the infrastructure gaps we have known about for decades. We still do not have high-quality train service between Las Vegas and Los Angeles, Los Angeles and San Francisco, Dallas and Houston. We do not have simple connections between many of our major downtowns and their servicing airports (pray for anyone trying to get to New York’s JFK, ever). Our public schools desperately need new HVAC systems, windows, roofs, and plumbing upgrades, as they have for years.
Nor did Americans seize our zero-interest-rate moment to build infrastructure for the future. Our tech sector might be the envy of the world. But Americans still pay more for slower internet service than citizens do in many other nations; more than 150 million people in this country surf the web at speeds that do not meet the Federal Communications Commission’s broadband standard.
Second, energy. We could have used our free-money moment to transition the economy to renewables. On the demand side, we could have made every home, commercial building, and government office more efficient using insulation and other cheap-and-easy fixes. We could have electrified everything, using subsidies and regulations to replace gas stoves with induction stoves, gas-powered vehicles with electric cars, and furnaces with heat pumps. On the supply side, we could have offered solar panels to every homeowner who wanted them. We could have constructed nuclear-power plants, hydropower plants, solar farms, and wind farms, flooding the market with cheap, abundant, and clean fuel.
Instead, we made marginal improvements to the supply of clean energy, weaning ourselves off fossil fuels a bit. But the United States still derives nearly as much power from coal as it does from renewable sources. We produce more crude oil than we did a decade ago, thanks to fracking and the shale boom. Gasoline consumption remains near its record high. Our slow energy transition has left us vulnerable to gyrations in the oil markets and made our climate crisis that much worse.
Third, housing. We did not build enough of it when capital was cheap, mortgage rates were low, and blue-collar workers needed jobs, leaving us with a shortage conservatively estimated at 3.8 million units. Instead, we turned our most vibrant cities into gated communities controlled by what amount to mercenary homeowner associations, letting disproportionately wealthy and white groups of neighbors hold up, shrink, or kill housing projects and drive up costs for everyone. New York City added 908,000 jobs but just 206,000 housing units from 2009 to 2019. As a result, the cost of a home in Brooklyn or Manhattan doubled. During the same period, San Francisco added more than 200,000 jobs but just 31,000 housing units. As a result, rents doubled.
The problem might be most acute in the superstar cities on the coasts. But it is nationwide: Despite the unemployment rate dropping below 4 percent and wages surging, nearly half of renters pay more than 30 percent of their income for housing, according to the Joint Center for Housing Studies at Harvard University. Moreover, tens of thousands of people have fallen into homelessness in the past few years.
Each of these issues urgently needs attention. And we could have imagined and constructed a better future for ourselves in so many more ways: new research institutes for vaccines and green energy; more community colleges, trade schools, and medical schools; a comprehensive, publicly financed day-care and early-childhood-education program. Yet we have a political system choked with veto points, whether the supermajority requirement in the Senate or community-input requirements at local zoning boards. We have a political system incapable of making long-term investments—indeed, of building anything big at all. We missed a rare window of opportunity. We still need to act, but we will have to do so when our problems are more entrenched and costs are higher.
The easing of inflation pressures is giving the economy some breathing room, for now – CNBC
If inflation has been the biggest threat to U.S. economic growth, then July’s data should provide signs that there’s at least some relief in the pipeline.
Prices were flat for the month as gauged by the items that the Bureau of Labor Statistics tracks for its consumer price index. That marked the first time the aggregate measure hadn’t posted a month-over-month increase since May 2020, when the widely followed index showed a modest decline.
Just a month ago, CPI posted its fastest 12-month gain since November 1982, following a trend that helped send economic growth into contraction for the first half of the year, stirring up talk of a recession.
But with at least the short-term trend indicating the rate of price increases is abating, economic optimism is perking up.
No recession, for now
“The whole recession narrative really needs to be put on a shelf for now,” said Aneta Markowska, chief economist at Jefferies. “I think it’s going to be shifting to a stronger-for-longer narrative, which is really supported by a reversal in inflation.”
Markowska, whose forecasts this year have been accurate, sees solid growth in the near term, including a 3% growth rate in the third quarter. The Atlanta Federal Reserve’s GDPNow gauge, which tracks economic data in real time, pointed to a 2.5% growth rate in a Wednesday update, up 1.1 percentage points from its last one on Aug. 4.
However, Markowska also expects pressures to intensify in 2023, with a recession likely in the back part of the year.
Indeed, there was a little bit for both arguments in the CPI report.
Most of the tempering in inflation came because of a fall in energy prices. Gasoline slid 7.7%, the biggest monthly decline since April 2020. Fuel oil tumbled 11% as energy-related commodity prices were off 7.6%.
Transportation services cost increases also came off the boil, with airline fares tumbling 7.8% to reverse a trend that has seen tickets surge 27.7% over the past year.
But there were few other signs of inflation declines in the report, with food costs particularly high. The food index, in fact, rose 1.1% on the month, and its 10.9% pace over the past 12 months is the highest since May 1979.
That’s causing worries at places such as City Harvest, which helps feed needy New Yorkers who have been hit especially hard by price surge that began last year.
“We’re seeing many more children come into food pantries,” said Jilly Stephens, the organization’s CEO. “Food insecurity had been intractable even before the pandemic hit. Now we’re seeing even more people turn to food pantries because of the rising prices.”
Stephens said the number of children seeking food assistance about doubled a year after the Covid pandemic hit, and the organization is struggling to keep up.
“We’re always optimistic, because we are supported by incredibly generous New Yorkers,” she said.
People keep spending
Despite the surging prices, consumers have been resilient, continuing to spend even with inflation-adjusted wages contracting 3% over the past year.
Jonathan Silver, CEO of Affinity Solutions, which tracks consumer behavior through credit and debit card transactions, said spending is at a healthy pace, rising about 10.5% over the past year, though inflation is influencing behavior.
“When you start to look at specific categories, there’s been a lot of shifting in spending, and as a result, some categories are being impacted more than others by inflation,” he said. “People are delaying their spending on discretionary items.”
For instance, he said department store spending has fallen 2.4% over the past year, while discount store spending has risen 17%. Amusement park spending is down 18%, but move theaters are up 92%. Some of those numbers are influenced by rising prices, but they generally reflect the level of transactions as well.
As inflation eases, Silver expects discretionary spending to increase.
“We believe there will be a spike later in the year that will create an upward slope to the spending in key categories where the consumer has been delaying and deferring spending,” he said. “Consumers may get a holiday present of some relief on food prices.”
In the meantime, the year-over-year inflation pace is still running at 8.5%. That’s just off the most aggressive rise in 40 years and a “worryingly high rate,” said Rick Rieder, chief investment officer of global fixed income at asset management giant BlackRock.
At the center of worries about global growth is the Federal Reserve and concerns that its interest rate hikes aimed at controlling inflation will slow the economy so much that it will fall into recession.
Following Wednesday’s report, traders shifted their bets to expecting the Fed to hike just half a percentage point in September, rather than the previous trend toward 0.75 percentage points, a move that Rieder said could be mistaken.
“The persistence of still solid inflation data witnessed today, when combined with last week’s strong labor market data, and perhaps especially the still solid wage gains, places Fed policymakers firmly on the path toward continuation of aggressive tightening,” he wrote.
The Pinched-Hose Economy – The Atlantic
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“It’s not just my opinion that things are weird,” Derek Thompson told me recently. It’s a fact of life, he explained, that the U.S. economy is behaving very strangely right now.
But first, here are three new stories from The Atlantic.
A Flopping Hose
We learned last week that unemployment in the U.S. is as low as it’s been at any time in the past 50 years, and a report released today shows that inflation slowed in July. Those are good things—and yet, economic output has also slowed in 2022, enough that economists are asking whether the country is in a recession.
I caught up with Derek Thompson, a staff writer and the author of the Work in Progress newsletter, about this huge disconnect between job growth and economic growth, and asked why it’s so hard to understand what’s happening with the economy right now. “If economic growth is really declining, it’s one of the strangest downturns in American history,” he told me.
Isabel Fattal: How should a regular, nonexpert person think about this moment in the U.S. economy?
Derek Thompson: When you’re thinking about the economy, you should think about three categories: statistics, labels, and feelings. Statistics, like the inflation rate or the unemployment rate, come from government surveys, and you should trust them, because they are highly descriptive of what is happening to the broader economy.
Feelings come from your personal experience in the economy. Is your local labor market good? How do you feel about whether your income is holding up against inflation?
Labels come from the National Bureau of Economic Research (NBER) Business Cycle Dating Committee. The label of “Are we in a recession or not?” is determined by eight economists. That has nothing to do with your feelings of the local economy at all.
Isabel: You wrote recently that “Are we in a recession?” is the wrong question to ask. Why?
Derek: There’s two reasons why it’s so hard to say whether we’re in a recession right now. Number one, the NBER is not going to render a judgment for several months, several quarters, or more than a year. So why debate now what we might not know for a year?
Number two, the GDP estimate that we just got from the Bureau of Economic Analysis is just that—an estimate—and the estimate will be revised. There’s about a coin-flip chance that the economy actually grew in the first half of 2022. What we know about recent growth unfortunately isn’t solid.
Isabel: What is one thing we do know for sure about the economy right now?
Derek: We know three things for sure. Number one, we know that inflation is very high, historically speaking—one of the highest rates in the past 40 years. Number two, we know that unemployment is low, as low as it’s been in 50 years. The labor market is roaring.
Number three, we know that growth is slowing down. We know that the GDP growth rate was really high in 2021, and we know that it’s slowing down in 2022. We don’t know if it’s what some economists would call a recession.
Isabel: As you’ve written, we’re in an everything-is-weird economy because different factors are behaving in contradictory ways; for example, jobs are growing, but the economy is shrinking. How should people deal with these mixed messages? What should we be paying most attention to?
Derek: Predicting the future of the economy is so hard that it’s useful to have a single metric to look for. The single metric I would watch is inflation, because if inflation starts to come down, as I believe it will in the next few months [it declined to 8.5 percent in July], the Federal Reserve doesn’t have to keep hacking up interest rates. If interest rates don’t keep going up, then the economy will probably get back to growth. So it all flows from inflation, and if I were interested in figuring out the direction of the economy, I’d be obsessed with watching energy prices, housing prices, and retail spending.
Isabel: How are Americans feeling about the economy right now? There’s a possibility that people’s feelings can actually affect where the economy goes from here, right?
Derek: It’s a really important point. Feelings aren’t imaginary. Feelings drive the economy, to a certain extent. When people are optimistic about the future, they spend more money.
But if you ask consumers how they’re feeling about the economy, they increasingly bifurcate by ideology. Republicans say they’re sad about the economy when a Democrat is in the White House. And Democrats say they’re sad about the economy when a Republican is in the White House. So it’s not as useful as it used to be to ask people about their consumer sentiment, because increasingly, consumer sentiment is just political sentiment.
On my podcast, Plain English, the economist Austan Goolsbee made the great point that in 1992, the entire presidential election was about an economic slowdown that had technically already ended. So statistically, the recession was over, but in vibes and feelings, the recession was deepening, and you had this electoral outcome—the defeat of the incumbent president—hinged on feelings of a recession that actually didn’t exist. That goes to show that even if feelings are disconnected from statistics, they still have real-world outcomes.
Isabel: Is this an unprecedented moment for the economy?
Derek: We’ve never had an economy like this, period. This is a cliché, but I’ve called this the pinched-hose economy. If you turn on the water in your backyard hose and you pinch the hose for a while, the water will build up, and then, when you release the hose, it’ll start sputtering wildly, and the hose will flop all over the place in a violent and strange manner. That’s what happened in the economy. We shut off the hose and said no one will fly, no one will go to restaurants, people won’t go to movie theaters. We purposefully shut down the economy because of the pandemic.
But then demand, which is the water, surged beyond supply’s capacity to easily fulfill it. That’s why we’re seeing the economic hose flopping all over the place. It’s why things are weird with baby formula, with gas prices, with airlines. That’s the hose flopping around. The hose is still flopping.
- Donald Trump took the Fifth Amendment and declined to answer questions from the New York State attorney general’s office in the investigation into his company’s business practices.
- Russian forces killed at least 13 civilians and wounded others in a missile attack in southern Ukraine overnight. Ukrainian special forces also reportedly carried out a strike on a Russian air base in Crimea yesterday, a move that would mark a significant escalation in fighting.
- The Justice Department charged a member of Iran’s Islamic Revolutionary Guard with allegedly plotting to assassinate John Bolton.
Hibernation: The Extreme Lifestyle That Can Stop Aging
By Katherine J. Wu
Today’s most elderly bats aren’t supposed to exist. Ounce for ounce and pound for pound, they are categorically teeny mammals; according to the evolutionary rules that hold across species, they should be short-lived, like other small-bodied creatures.
More From The Atlantic
Read. The Yellow House by Sarah M. Broom, a memoir set in New Orleans that has an incredible sense of place.
Or try another pick from our list of eight books that grapple with a hard childhood.
Watch. In the mood to solve a puzzle? Watch or rewatch Severance (Apple TV+) or Yellowjackets (Showtime)—but this time, try to follow along with fan theories on the internet, which play a bigger part in shaping modern TV than you might realize.
Singapore Narrows Growth Forecast After Economy Shrinks in 2Q – BNN Bloomberg
(Bloomberg) — Singapore trimmed its 2022 growth forecast to reflect an increasingly challenging global environment, after the economy slipped into contraction in the second quarter.
Final data for the June quarter Thursday showed gross domestic product shrank 0.2% from the previous three months, and worse than the zero growth estimated by Ministry of Trade and Industry earlier. It also narrowed the full-year projection to a range of 3%-4% from 3%-5% seen before.
The MTI flagged risks to global recovery from aggressive monetary policy tightening as well as China’s ongoing struggles with Covid-19 and a property market downturn.
“Downside risks in the global economy remain significant,” Gabriel Lim, MTI’s permanent secretary, said in a briefing after the release.
Lim cited potential further escalation in Russia’s war in Ukraine, which would worsen inflation and global growth prospects, as well as financial instability caused by tighter monetary policies in advanced economies and possible further geopolitical tensions in Asia.
The Singapore dollar fell 0.1% to 1.3704 per dollar at 8:36 am local time.
The trade-reliant city-state has sought to stave off further damage to its post-Covid growth recovery, stemming especially from supply-driven price shocks, through a combination of monetary policy tightening and targeted subsidies to aid the most vulnerable households. Singapore officials are bracing for further volatility in a global economy that the International Monetary Fund warned is on the brink of recession.
“The bigger question is what is the 2023 outlook,” said Selena Ling, head of Treasury Research & Strategy at Oversea-Chinese Banking Corp. “Will there be recession in the major economies that will drag the global and Asian growth prospects down further?”
The trade ministry data Thursday also showed the economy grew 4.4% in the second quarter from a year ago, compared with an earlier estimate of 4.8% expansion. The government expects “slight” quarter-on-quarter growth for the remainder of the year, ruling out a technical recession, according to MTI.
Monetary policy is still appropriate after the tightenings this year, Edward Robinson, deputy managing director for the Monetary Authority of Singapore, said at the briefing.
But “significant uncertainties” remain on the inflation outlook and third quarter will be a critical time to watch those pressures, he said. The closely-watched core inflation print is seen to “rise a bit” this quarter, Robinson said.
(Updates with ministry’s comments in fourth paragraph and economist comments in eighth.)
©2022 Bloomberg L.P.
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