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Americans say they hate the economy but act like they love it – CNN

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New York (CNN Business)The Biden economy is a walking contradiction.

Consumer sentiment is at a 10-year low, tumbling in November to levels unseen even during the height of Covid-19. A staggering 70% of Americans rate the economy negatively in an ABC News-Washington Post poll.
And yet Americans are shopping up a storm, with retail sales soaring in October at the fastest pace since stimulus checks were sent out in March. Walmart, Target (TGT) and Home Depot are booming.
Hiring is strong (much stronger than the government initially thought). And workers are quitting their jobs at a record pace, in large part because they are very confident they can easily find a better job.
Something doesn’t add up. And that something has a lot to do with the nation’s first inflation scare in decades.
Gas prices are at seven-year highs. Food prices are soaring. New car prices surged in October the most since 1975.
Simply put, the cost of living is going up, and Americans aren’t happy about it. Inflation is overshadowing real bright spots in the US economy.
“The economic news is generally good. But inflation is in your face, every day. Some of the most visible prices are up and that makes it seem like the inflation problem is worse than it is,” said Gus Faucher, chief economist at PNC.
The good news is that despite elevated inflation and the supply chain crisis, Americans are still shopping. That’s crucial because consumer spending makes up two-thirds of the economy.
The October retail sales report, which easily beat expectations, signals the US economy is heading into the holiday shopping season with serious momentum — despite the doom-and-gloom signaled by polls.
“People say they are not feeling great about the economy — yet they are spending,” said Aneta Markowska, chief economist at Jefferies. “I just don’t fully believe what the confidence reports are telling us.”
Ultimately, if Americans keep spending, then this confidence problem is much more of a political problem for President Joe Biden — as opposed to an economic one.

Show of confidence: Workers are quitting like never before

Of course, it’s important to note that different people are experiencing different things in today’s economy — especially given all the shockwaves set off by Covid. Some parts of the economy hit the hardest by the pandemic, including the travel industry, are still struggling to recover.
And inflation is most painful to low-income families and those living on fixed income. Social Security cost of living adjustments are coming, but not until next year.
Still, there is more evidence that the overall jobs market continues to recover swiftly from Covid. A surge of hiring in October dropped the unemployment rate to 4.6%, down from nearly 15% in April 2020.
Goldman Sachs expects the jobless rate to slip to 3.5% by the end of next year, matching the 50-year low set before the pandemic.
Although there were concerns about a summer slowdown in hiring, revisions show the government dramatically underestimated job growth between June and September.
The Labor Department marked up its original forecast by a total of 626,000 jobs over that span.
At the same time, a record 4.4 million Americans quit their jobs in September, clear evidence of how much leverage workers have in today’s economy.

Biggest price spike since 1990

None of this is to say that inflation isn’t a real challenge. It is.
Consumer prices surged in October by the fastest pace since 1990. Inflation has been stronger and lasted longer than the White House, the Federal Reserve and the smart money on Wall Street anticipated.
The most glaring example is the price at the pump. National gas prices stand at $3.41 a gallon today, up from $2.12 a year ago.
Americans do not like high gas prices, and they have a long history of blaming whoever is in the White House, fair or not.
Big picture, there is a growing realization that inflation will stay elevated for months to come, and some argue prices will go even higher before they come back to earth.
Wages are going up sharply amid a war for talent among companies. Yet wages are often not going up by enough to offset higher consumer prices.

Republicans vs. Democrats

The deeply polarized state of America may be amplifying these inflationary concerns.
The University of Michigan’s consumer sentiment index shows wide gaps among partisans during both the Trump and Biden administrations along key issues, including jobs and inflation-adjusted income.
“Partisans aligned with the President’s party have adopted very positive moods, and those in the opposing camp very negative moods,” the University of Michigan report said. “Partisan supporters of one or the other president either mentioned or ignored rising home and stock values, inflation and income growth rates or mentioned or ignored employment or unemployment rates, and so far.”
But politics likely does not tell the whole story here.
Consumer sentiment is down across the board, with Democrats, Republicans and independents all giving the economy poorer marks in the University of Michigan survey today than in the spring of 2021. Sentiment dropped most dramatically among Republicans.
And consider that consumer sentiment among Democrats stands at 87 today. That’s only slightly better than the low-80s readings in early 2017 after former President Donald Trump took office.

‘Big shock to the system’

Another part of the problem is that many Americans have never lived through a period of sticker shock before. Inflation was unusually subdued for the past dozen years, so tame that many economists feared a Japanese-style deflationary spiral that would be hard to get out of.
“Inflation is something that a lot of people have not experienced in their lifetimes. It’s a big shock to the system,” said Markowska, the Jefferies analyst.
For older Americans, all of this inflation talk brings back bad memories of the runaway inflation of the 1970s and early 1980s. That’s despite the fact that today’s situation is nowhere near the consumer price spikes back then, which peaked at 14.6% in 1980.
The ironic thing about these inflation fears: A big part of the reason inflation is here today is because demand is booming as the economy recovers from Covid faster than many imagined possible back in March 2020.
Inflation wouldn’t be a problem if the US economy was experiencing something like the painfully slow recovery from the Great Recession.

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What Olaf Scholz means for the world economy – BBC News

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Olaf Scholz

EPA

It is an important moment for Europe. A new German chancellor. And what happens in the German economy affects us all.

It also happens to be the elevation of an incumbent finance minister to the most powerful position in European politics.

I did the last lengthy English-language interview with Olaf Scholz, when he was visiting London in summer to seal a deal on global multinational taxation, before he became favourite for the German chancellorship.

He was almost tearful with joy at the G7 agreement, on a topic he had suggested years before. The agreement “will really change the world”, he told me, of a move impossible a year before with President Trump.

A political rival once likened his grin to that of the Smurf cartoon characters. He retorted that they are “small, crafty and always win”.

Signature policies

There are three signature economic policies he has been associated with that are of ongoing significance.

For one, he told me of his pride that the short-time working schemes, whose use was promoted in Germany by his ministry in the aftermath of the global financial crisis, were now being used around Europe, including the UK, in the guise of the furlough scheme.

“It was right that we gave very strong fiscal answers to fight against the pandemic,” he told me.

“We supported the health of our people with the money we spent, but also the economy and many jobs.

“Short-term allowances, Kurzarbeit – the method which I used when I was the minister of labour in Germany 10 years ago with the last crisis – are now something that is used, not just in Germany, but all over the EU and many other countries of the world. And this shows that it is right to do something against a crisis like this.”

He was also responsible for the Agenda 2010 reforms of the last centre-left Chancellor Gerhard Schröder. Those reforms saw significant reductions in labour costs in Germany, the establishment of low-paid “mini jobs” and also a rapid rise in German export competitiveness, as well as the revival of its economy.

The inability of southern Europe to compete helped lead to the profound eurozone crisis. The view in Germany, that the rest of Europe had to go through the same “internal devaluation” before Germany would sign off on bailouts of bankrupt eurozone nations, prolonged that crisis.

Amid that fearful moment, he also signed off on the “debt brake” policy that meant in normal times, Germany would not invest. It has been suspended during the Covid pandemic for obvious reasons.

The brake will return under the coalition agreement just struck with the Greens and Liberals, but not before a splurge in investment spending. The challenge is how to square ongoing spending plans with no tax rises and controls on borrowing.

Germany’s long history of state-backed investment lending institutions such as KfW will help bridge this gap. But this will be a source of tension in this untested three-party coalition.

But lessons have been learnt from the eurozone crisis. Mr Scholz now backs non “mini-jobs”, but a €12 minimum wage. As finance minister, he helped Brussels sign off its own centralised capacity to borrow money to help growth and deal with crises.

Climate club

Chancellor Scholz is very focused on climate change, in the home of the European automotive industry. His concept is massive investment to further green Germany’s industrial base. And internationally, the establishment of a “climate club” of like-minded nations to manage frictions over trade.

“Success in fighting against climate change will only be feasible if we include all the nations and if everyone understands why it’s good for himself and for his people. We are now discussing the question of co-operation,” he told me.

How German industry deals with, for example, the EU-proposed border tax on carbon emissions will be a crunch point on the path to net-zero.

All this comes at a time when inflation has spiked up to 6% in the famously inflation-averse nation. And German industry has been hit for six by the supply chain constraints on microchips and other parts in the post pandemic rebound.

Pre-Omicron, most forecasts suggest the German economy will avoid the feared “bottleneck recession”, but the situation is definitely more challenging than at the time of the election in September.

And then there is Brexit and fears over a trade war. Will the famous German carmakers force a new chancellor to fold over Article 16 to protect their exports to the UK? It is not a priority in the Bundeskanzleramt, the washing-machine-like version of the White House in Berlin.

There will be continuity with the policies of the Merkel administration. When I asked about frictions with the UK, Olaf Scholz was diplomatic but pointed.

“I’m always optimistic and happy that we got a deal in the end on the relationship between the European Union and the UK, and I hope that everyone will follow the deal and that everything will be exactly to what we have just written down,” he told me.

“And if this is the case, I think we can be assured that we will have good trade relations also in the future, which would be good for the people of the UK as well as for the European Union.”

So some reason for optimism, as long as the deal is followed. For now, Chancellor Scholz has his own economic challenges closer to home.

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French Economy Shows Little Sign of Succumbing to Omicron Angst – BNN

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(Bloomberg) — French economic activity will continue to rise in December, despite another wave of the Covid-19 pandemic and fresh uncertainty over the omicron variant, according the Bank of France.

Completed at the end of last week, the central bank’s monthly survey of 8,500 firms is the first indicator of how businesses in the euro area’s second-largest economy are faring since the new coronavirus strain emerged.

Based on their responses, the bank estimates economic activity was 0.5% above pre-crisis levels in November and will be 0.75% higher this month. That means output for the whole fourth quarter will also expand by almost 0.75%.

The report provides some reassurance on the capacity of European economies to weather the latest virus surge. It follows bullish remarks last week by Bank of France Governor Francois Villeroy de Galhau, who said omicron wouldn’t change the outlook “too much.”

While France late Monday introduced further restrictions — including closing nightclubs — to slow the spread of the disease, the moves are designed to have limited economic impact and the government has pledged to compensate those affected.  

Even so, the central bank’s survey found that some companies “indicated difficulties in giving a short-term outlook” because of the uncertainties — particularly in industries like hospitality and air travel.

In addition, hiring difficulties and supply disruptions persist. About half of firms polled said they’re struggling to find staff and 57% of industrial companies said supply snarls have dented activity, according to the Bank of France.

©2021 Bloomberg L.P.

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Japan economy contracts 3.6% in Q3 on weaker consumer spending, trade – Business Standard

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Japan’s contracted at a 3.6% annual rate in July-September, according to a revised estimate released Wednesday.

The downgraded growth estimate for the last quarter, down from an earlier report of a 3.0% contraction, reflected weaker consumer spending and trade, the government said.

The world’s third-largest has been mired in recession and struggling to recover from the impact of waves of coronavirus infections.

The latest outbreak, in the late summer, has receded for now with a sharp drop in cases. But it hit during the usually busy summer travel season, with calls for restricted business activity and travel hurting restaurants, hotels and other service sector industries.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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