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Economic recession fears could be overblown – The Washington Post



If there is a recession brewing in the United States, it would be news to Doug Johnson.

The president of Marion Manufacturing Co. in Cheshire, Conn., Johnson is enjoying some of the best times in his company’s 76-year history. Sure, he’s heard the negative chatter about rising prices, sinking stocks and mounting risks from trouble overseas. And he’s seen the polls showing that most Americans think the economy is headed for a tumble.

But as Johnson looks out over his 30,000-square-foot operation, all he sees are busy workers racing to keep up with new orders for a variety of vital steel and copper components, including those used in electrocardiograms and cable television hookups. His biggest problem is finding enough labor to handle all the metal-bending work that is coming his way.

“There’s so much pent-up demand, and everybody I talk to — our suppliers and our customers — says the same,” he said. “We’re up 40 percent over last year and climbing. This month, we were up 100 percent over last year. It’s incredible.”

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Johnson’s upbeat view stands in stark contrast to more prominent figures’ deepening gloom. On Wednesday, Jamie Dimon, chief executive of JPMorganChase, warned that “a hurricane” is bearing down on the U.S. economy.

Tesla chief Elon Musk and Lawrence Summers, a former treasury secretary, also have warned of a looming recession. In a Quinnipiac University poll last month, 85 percent of Americans agreed a downturn was either “very” or “somewhat likely” in the next year.

President Biden on June 3 delivered remarks on the May jobs report while acknowledging “a lot of Americans remain anxious” about inflation. (Video: The Washington Post)

Yet Marion Manufacturing’s good fortune — echoed by continued strength in consumer spending and signals from Wall Street — suggests that such dire assessments may be wrong. On Friday, the Labor Department said the economy gained 390,000 jobs in May, beating analysts’ expectations, while the unemployment rate remained at 3.6 percent.

“I’m not sure what’s driving all the talk of recession,” said Johnson. “There’s a lot of negativity out there that’s not well founded.”

The Federal Reserve’s recent change of course on monetary policy is the biggest source of recession fears. After repeatedly assuring investors last year that inflation would prove “transitory,” Fed Chair Jerome H. Powell this year has steered the central bank on a path of interest rate hikes designed to slow the economy and ease pressure on consumer prices.

The Fed’s about-face already has been bad news for financial markets. Lifting interest rates from near zero caused investors to rethink their portfolios, sending stocks plummeting and cementing the notion that something about the economy has gone seriously awry.

But recent indicators suggest that the two-year-old expansion — while slowing from an unsustainable pace of annual growth near 7 percent late last year — shows little sign of slipping into reverse. The labor market is churning out “help wanted” signs faster than employers can add workers. Consumers and businesses are flush with cash. And by some measures, the bond market appears less worried about inflation than do many pundits.

“After a rocket-like rebound from the pandemic, there has to be some moderation in growth,” said Ian Shepherdson, chief economist for Pantheon Macroeconomics. “But there’s an important distinction between moderation and recession.”

Economists describe recessions as a widespread decline in activity affecting output, income, industrial production and retail sales. The term is generally understood to involve two consecutive quarters with falling gross domestic product, although there is no official definition.

Despite Americans’ sour mood, economists surveyed by Bloomberg in May expect the economy to expand at an annual rate of 2.7 percent this year. That’s down from the 3.3 percent forecast in April, but far from a recession.

In April, layoffs hit their lowest level since the Labor Department began keeping track in 1999. The economy has added an average of 408,000 jobs in each of the past three months. And first-time jobless claims, though up from their all-time low in March, are running at roughly half their average over the past 50 years.

Continued economic strength is a double-edged sword. It means more people who want work will probably find it. But it raises the chances that the Fed, which already has raised rates twice and signaled plans for two additional half-point increases, might overdo it and trigger a recession.

Summers, a Democrat who has been critical of the Fed, told a Washington Post Live event this week that rates need to rise faster and higher than the central bank plans. Inflation won’t be brought under control without “higher unemployment,” he said.

Dean Baker, senior economist at the Center for Economic and Policy Research, said the Fed’s initial rate increases are working. Financial markets’ response to the Fed’s actions are further tightening financial conditions and may reduce the need for additional rate hikes.

“I’m ordinarily not the big optimist,” Baker said. “But things are generally going the right way. I don’t see the basis for a recession.”

Even before the Fed began increasing rates in March, financial conditions were growing tighter. First, banks started charging more for mortgages. On Thursday, the rate for a conventional 30-year home loan was 5.39 percent, up more than two percentage points since January, according to Bankrate.

Then, stocks stumbled. The technology-rich Nasdaq index this year is down more than 20 percent, which may help slow the economy as chastened investors retrench on spending.

At least for now, investors also seem to be siding with the Fed over Summers. Wall Street expects annual inflation of 2.76 percent over the next 10 years, down from more than 3 percent in late April, according to one popular market gauge derived from the yields on 10-year U.S. Treasury securities.

That’s a signal that investors believe the Fed will quell inflation before expectations of future price increases harden into a self-fulfilling prophecy. The central bank’s preferred inflation measure, the core personal consumption expenditures price index, also has declined for two straight months.

“The path may be narrow. But we believe the Fed still can thread that needle to a soft landing,” said Michael Pond, Barclays’ global head of inflation-linked research.

Americans are less sanguine. The University of Michigan’s monthly consumer confidence reading for May sits at an 11-year low.

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It’s not difficult to see why consumers are unhappy. The retail price of gasoline appears headed for $5 per gallon. Persistent supply chain headaches have left shoppers facing a rotating series of product shortages, including for critical items such as baby formula. And even where wages are rising, they aren’t keeping pace with prices.

The economy also faces an unusually complex mix of risks.

The war in Ukraine drove up the price of key global commodities, including wheat and oil, and increased the chances of recession in Europe. Meanwhile, China’s inflexible zero-covid policy has triggered repeat lockdowns that disrupted factories in the world’s top export nation and left global supply chains shrouded in uncertainty.

These geopolitical forces are immune to higher interest rates, which could leave the Fed in an awkward spot if inflation remains elevated even after a significant increase in borrowing costs.

Further shocks from the European war or snarled Asian production networks also could drag the United States into a slump.

But, even as surveys show that consumers and executives are worried about recession, they are spending as if they expect good times to last. In late May, Macy’s raised its profits forecast after reporting that net income in its most recent quarter had nearly tripled compared with the same period last year.

Though Americans have begun dipping into their savings to support their spending, they still have more than $2 trillion in reserve. That should put a floor under growth, economists said.

“Fears of declining economic activity this year will prove overblown unless new negative shocks materialize,” Goldman Sachs economists concluded in a May 30 client note.

At DHL’s North American supply chain unit, CEO Scott Sureddin said he detects no sign of a downturn. The company has been adding new warehouses and working around the tight labor market by filling them with autonomous forklifts and smaller, package-grabbing robots. This year, it will spend hundreds of millions of dollars on such efforts.

“We’re still seeing good growth. We’re still making major investments in technology,” he said. “There’s nothing slowing down that’s having us stop investing.”

Indeed, the financial imbalances that often precede a recession are absent. On the eve of the 2008 Great Recession, for example, consumers were struggling to pay their bills, devoting the largest share of their income in history to their monthly loan and credit card charges. Today, Americans’ debt service payments consume just 9.3 percent of disposable income, near a 41-year low, according to the Federal Reserve.

Corporate debt burdens also are remarkably light. Two decades ago, interest payments ate up almost 25 percent of nonfinancial businesses’ cash flow, according to Moody’s. Today, the figure is less than 10 percent.

At Marion Manufacturing, Johnson this year is spending several hundred thousand dollars on new factory equipment to turn stainless steel and beryllium copper into a variety of industrial parts. He sees no reason to reconsider those plans.

“Our business as a whole has never been as robust as it is now,” Johnson said. “We’re pretty bullish.”

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Uneven economic recovery does not bring all Canadian women with it: experts



OTTAWA — After more than two years of economic turbulence through the COVID-19 pandemic, Canada’s workforce participation overall appears quite rosy for women.

The share of women aged 25 to 54 years old is at its highest level ever in the country at 85 per cent. Meanwhile, unemployment for all workers hit a record low, according to Statistics Canada.

But experts say while looking at the economic big picture might seem like cause for celebration, a closer inspection at the details offers a more nuanced look at the uneven recovery that has not uplifted all groups of women equally.

Women working in sectors directly affected by the pandemic — public-facing jobs and the care economy — were deeply affected by closures throughout the pandemic. While other groups of women remained at work during this period, they were managing a massive increase in unpaid domestic and care work at home. Taken together, experts said these forces affect women’s economic security and gender equality as a whole.

Women did much worse during the pandemic compared to previous recessions. In past recessions, about 17 per cent of employment losses were for women, with mostly men losing their jobs, said Brittany Feor, economist at the Labour Market Information Council. During the pandemic recession, job losses were almost evenly split between men and women.

A recent report by the council found that this year, the picture is somewhat positive, said Feor, but it depends on the type of job and sector a woman is working in.

Both points have to do with the fact that many women work in sectors that were vulnerable to pandemic restrictions and precarious to begin with, like accommodation, food services and recreation, said a recent report by the Canadian Centre for Policy Alternatives.

Pandemic recovery efforts that focus on those facing the greatest barriers are needed to stave off gender equality gains being lost, said the centre’s report.

Feor also cautioned against the risk of backsliding gains by women as time goes on, specifically noting current work participation by moms.

“It’s much higher than it has been in other years, it’s recovered. That seems positive. But it’s also still only 2022. So we want to be mindful to check back in three years and four years and five years. What does that look like?” she said.

The effect of having to stay at home with a young child or work from home with a young child may influence women’s career paths in ways that aren’t immediately known, said Feor.

“The setbacks you faced by not being able to participate in a certain project or work longer hours compared to your male counterparts who didn’t have to do the same thing — those are issues that will play out in the long-term.”

Juggling home care and work responsibilities may affect a woman’s career as well as her health, said Andrea Gunraj, the vice-president of public engagement for the Canadian Women’s Foundation.

The foundation held a recent poll that suggested Canadian moms are much more likely than dads to say they feel anxious and sad, and those feelings haven’t dissipated since they were asked the year prior.

Maru/Matchbox surveyed 1,506 Canadians from April 20-21 on behalf of the foundation. It cannot be assigned a margin of error because online panels are not considered truly random samples.

About two in five moms said they put their career on the back burner to manage home and caregiving responsibilities.

“That, for me, is a really interesting and upsetting finding because what you see is that people are putting aside paid work to be able to manage unpaid work, essentially. And what does that mean for women’s economic well-being, their ability to take care of themselves and their dependants? It’s a huge impact on them,” Gunraj said.

Almost half of moms said they are reaching their breaking point this year, compared to just over 30 per cent of dads saying so.

“It’s really a situation of people being really stretched, and women being disproportionately stretched because of unpaid care responsibilities,” Gunraj said.

At a recent funding announcement, Employment Minister Carla Qualtrough said the government has invested $300 million to create an employment strategy for people with disabilities, created a women’s entrepreneurship fund, and tailoring its apprenticeships and programs to help sectors address labour market needs on women.

When it comes to helping women caregivers, “we know that affordable, accessible child care is No. 1, it’s really going to make a difference,” Gunraj said in reference to the new federal plan to create an affordable child-care system across the country.

Gunraj noted it has to be truly affordable and accessible to the most vulnerable families, which means being able to evaluate its outcomes to determine whether it’s not helping people to the extent it needs to, and then improve it.

The national child care plan helps moms and their children, but it could also help create well-paid care work jobs for newly created early childhood educator positions, the CCPA report said.

This depends on the minimum salaries set out by the provinces and territories, with Ontario setting its minimum wage for early childhood educators at $18 per hour.

At the recent announcement alongside Qualtrough, the families, children and social development minister said the federal government asked provinces to include a wage grid in the signed child-care agreements.

“Working conditions and wages are the jurisdiction of provinces and territories. But we are encouraging them at every turn to do more,” said Karina Gould.

New Brunswick increased its minimum hourly wage for early childhood educators to $23.40, Newfoundland to $25 and Yukon to $30, she said.

This report by The Canadian Press was first published June 25, 2022.

This story was produced with the financial assistance of the Meta and Canadian Press News Fellowship.


Erika Ibrahim, The Canadian Press

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Putin Is Pushing Germany's Economy to the Breaking Point – BNN



(Bloomberg) — In Germany, some industrial furnaces have been running without interruption for decades. If they cool down suddenly, the molten materials harden and the system breaks. 

That’s the kind of concern sweeping through Europe’s largest economy as it faces an unprecedented energy crisis.

What started as vague foreboding over reduced supplies of Russian gas is now very real. After President Vladimir Putin slashed flows on the main link to Europe by 60%, experts in Chancellor Olaf Scholz’s administration this week worked out the scenarios and none of them led to sufficient reserves to make it through the winter.  

“That was the sobering moment,” Klaus Mueller, who heads Germany’s network regulator known as BNetzA, said Friday in an interview with Deutschlandfunk radio. “If we have a very, very cold winter, if we’re careless and far too generous with gas, then it won’t be pretty.”

The risks extend beyond beyond a recession, and a winter of freezing homes and shuttered factories. For decades, Germany has prospered off the back of cheap gas. The answer to the growing economy’s needs more often than not was a new pipeline to Russia. 

That era is now over, and companies from BASF SE to Volkswagen AG are coming to terms with the new reality. 

There will be quick fixes — like reviving polluting coal plants and switching fuels in industrial processes — but structural issues loom as the transition to affordable renewable power will still take years.   

Firms making metals, paper and even food could be forced to downscale or close German production sites, accelerating a steady exodus of manufacturing jobs and leaving lasting damage to the country’s economic landscape.

“Companies will move production to where there’s competitive pipeline gas, and this won’t be in Germany,” said Wolfgang Hahn, managing director of Energy Consulting Group GmbH. “You can’t correct 20 years of policy errors in two or three years.”

The latest figures show that it would take 115 days to reach the government’s target of filling gas reserves to 90% capacity by November. That time frame assumes flows remain at the current level, which is unlikely given the Kremlin’s increasingly aggressive posture toward Europe in retaliation for sanctions imposed over Russia’s war in Ukraine. 

In response to the grim prospects, Germany — which still relies on Russia for more than a third of its gas supplies — elevated its threat level to the second-highest “alarm” stage on Thursday. If the squeeze gets tighter, Germany could start rationing supplies. 

The moment of truth is likely to come next month, when the Nord Stream pipeline goes down for scheduled maintenance. Germany worries it may never come back. 

“I would have to lie if I said I didn’t fear that,” Economy Minister Robert Habeck said Thursday in an interview with public broadcaster ZDF. 

Germany’s vice chancellor drew a parallel between the gas squeeze and the role of Lehman Brothers in triggering the financial crisis. If energy suppliers continue to pile up losses by being forced to cover missing Russian supplies at high prices, there’s a risk of a broader collapse.

Uniper SE, Germany’s largest Russian gas importer, has already warned it may face difficulties fulfilling supply contracts to local utilities and manufacturers if Moscow prolongs or increases gas cuts.    

The crisis has already spilled far beyond Germany, with 12 European Union member states affected and 10 issuing an early warning under gas security regulation. Europe’s increased demand for liquefied natural gas will also hit poorer nations around the world as they struggle to compete for cargoes. 

“We are worried” that Russia will cut off gas supplies to Europe, Estonian President Kaja Kallas said at the EU summit in Brussels on Friday.  “We need to be prepared to have different energy mixes, united purchases of liquefied gas and do these things together.”

Read more: Europe Must Declare a War Economy: Andreas Kluth

Scenarios from BNetzA, which would manage Germany’s gas distribution in the event of rationing, take into account a series of emergency measures, including two floating LNG terminals that will come online this winter, auctions of excess fuel for industry and a 15 billion-euro ($15.8 billion) government program to buy gas on the spot market.

“Storage sites in Germany need to be filled as soon as possible,” said Sebastian Bleschke, head of INES, the association of German storage operators. “For some sites, the window of opportunity is closing.”

Bavaria-based Wiegand Glas shows the difficulty of unwinding Germany’s gas demand. The company’s 11 glass-melting furnaces — like all those in the country — operate 24 hours a day for more than a decade. Even if Wiegand idled production, the furnaces would need 75% of normal gas consumption to prevent the molten glass inside from seizing up and destroying the furnace.

“But then we have to carry the energy cost while we have nothing to sell, so this is not really an option,” Chief Executive Officer Oliver Wiegand said in an interview. If the highly-specialized furnaces break, rebuilding would be time-consuming and expensive. “It would take a decade to build up to normal production again,” he added.

Economists are trying to pin down the scope of the risk, but it’s a challenge. European Central Bank President Christine Lagarde said 75% of what the bank got wrong in its inflation prediction last year was due to energy prices.

German economic institutes warned in April that an immediate halt to Russian imports of oil and natural gas would cause a 220 billion-euro hit to output over the next two years. While it could be more benign now as storage levels tick up, predicting the outcome of an unprecedented situation is difficult, said Stefan Kooths, an economist at the Kiel Institute for the World Economy, who was involved in the forecast.

The Bundesbank estimates that Germany’s economy will shrink more than 3% in 2023 if Russian energy supplies stop. That would be the worst slump outside of the recessions sparked by the Covid-19 pandemic and the global financial crisis.

The outlook is already grim. Manufacturing orders at factories have fallen for the past three months, costs are rising and confidence is crumbling. The Ifo Institute’s closely watched measure of business expectations unexpectedly dropped this month.

For now, companies are bracing for a prolonged reduction in energy. BASF, Europe’s biggest chemicals maker, may cut output because of the rising cost of gas, which is used as a feedstock in production and to generate electricity. BMW AG, the world’s biggest luxury-car maker, may buy electricity rather burn gas in its own on-site power plants. 

“We could switch some production from gas to oil if needed, but it would be five-times less efficient,” Hagen Pfundner, head of the German operations of Swiss drugmaker Roche Holding AG. “That would not be a durable solution.”

Germany is preparing consumers and businesses for tough times ahead. BNetzA’s Mueller warned that households could face doubling or tripling of their gas bills and called on people to save money and energy. Habeck appealed to Germans sense of solidarity to fend off Putin’s energy attacks. 

Responding to the suggestion of a state bonus for saving gas, he said: “If someone says ‘I’ll only help if I get 50 euros more,’ I’d say ‘you’re not getting it, dude.’”

Read more:

  • Germany Warns of Lehman-Like Contagion From Russian Gas Cuts
  • Gas Rationing Is Getting Closer for Europe
  • The Weakest Link in Germany’s Energy Security Is Fraying
  • Germany Girds for Day of Reckoning in Russian Gas Showdown

©2022 Bloomberg L.P.

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Charting the Global Economy: Activity Cools in Europe, US – BNN



(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Business activity in Europe and the US stumbled this month as high inflation, lingering supply constraints and rising borrowing costs took a bigger toll.

Retail and wholesale prices in the UK accelerated, while a key gauge of inflation in Singapore hit an almost 14-year high. Meantime, more central banks around the world continued to raise interest rates.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:


Euro-area economic expansion slowed sharply as surging prices curbed the rebound from pandemic restrictions and factories continued to suffer from supply snarls. An indicator for economic activity by S&P Global fell to a 16-month low in June, driven by rampant inflation, concerns over energy and rising borrowing costs. 

UK inflation rose to a fresh four-decade high in May after broad increases in the cost of everything from fuel and electricity to food and beverages. The cost of goods leaving factories, meantime, rose 15.7% from a year ago, a full percentage point stronger than expected and the most since 1977.


The University of Michigan’s final June reading of longer-term US consumer inflation expectations settled back from an initially reported 14-year high, potentially reducing the urgency for steeper Federal Reserve interest-rate hikes.

Business activity took a decisive step back in June as rapid inflation reduced demand for services and led to outright contractions in factory orders and production.

Another month, another record for US single-family rents, which jumped 14% year-over-year in April, marking the 13th period of record-breaking annual gains. Supply shortages and a strong job market are driving prices up, according to CoreLogic, a provider of real estate data.


A world economy already contending with raging inflation, stock-market turmoil and a grueling war is facing yet another threat: the unraveling of a massive housing boom. The effects are being seen in countries such as Canada, the US and New Zealand, where once-hot residential real estate markets have suddenly turned cold. 

Central bankers, desperate to tame the relentless march of inflation, have been sending not-so-subtle signals that they would for once welcome a stronger currency, which helps reduce the cost of imports by boosting buying power abroad. If left unchecked, this international competition threatens to handicap manufacturers that rely on exports, upend the finances of multinational companies, and shift the burdens of inflation around the world.

Iceland’s central bank raised borrowing costs again by a full percentage point to a five-year high, doubling down on its struggle to curb inflation and cool one of Europe’s hottest housing markets. Central banks in Mexico, Czech Republic and Norway also boosted rates.


Chinese President Xi Jinping pledged to meet economic targets for the year even as the government’s zero tolerance approach to combating Covid outbreaks and a weak housing market put the growth goal further out of reach. Most economists expect Beijing will miss its gross domestic product growth goal of around 5.5% this year.

Indonesia’s central bank held its benchmark interest rate at a record low again, saying inflation remains manageable as it cemented its place as an outlier on monetary policy. The move sets Indonesia apart from most central banks.

Singapore’s key inflation gauge accelerated for a third month to the fastest in almost 14 years, bolstering the case for further monetary policy tightening and stronger action to buffer consumers from the drag of rising prices.

Emerging Markets

Mexico’s economy expanded at the fastest pace in over a year, suggesting a recovery seen at the beginning of 2022 is gathering speed. Latin America’s second-largest economy grew 1.1% in April compared to the previous month, the most since March 2021.

©2022 Bloomberg L.P.

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