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Recession fears are centerstage again with US economy sending mixed messages – The Washington Post

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Retail sales jumped 1 percent in June as consumers continue to absorb higher costs, according to federal data released Friday.

While the closely watched metric of the nation’s economic health shows that Americans are still spending, rising retail numbers also threaten to push inflation higher in a hot economy. That could prompt policymakers to take even more forceful action to combat 40-year high inflation.

The report is the first of two out Friday offering insights on Americans’ spending habits and their expectations for the economy.

Consumer sentiment data will be released by the University of Michigan at 10 a.m. will give economists an idea of how Americans are feeling about the economy. Consumer sentiment fell to an all-time low in June, with many Americans worried about long-term inflation.

“We’re at this weird moment where you sort of want the economy to slow. You just don’t want it to go into reverse,” said Jason Furman, an economics professor at Harvard University. “There are a lot of unusual uncertainties that we don’t usually see.”

The looming question is whether the U.S. economy shrank again in the second quarter of 2022, after unexpectedly contracting in the first three months of the year. The next round of gross domestic product figures will be released July 28.

“After flying well above cruising altitude last year, the inevitable descent in economic growth is clearly underway,” Wells Fargo economists wrote in a note on Thursday. “The tight stance of policy alongside still high inflation suggests a recession is more likely than not next year.”

There’s a mix of signals in the business world. On Thursday, two of the nation’s largest banks, JPMorgan Chase and Morgan Stanley, reported lower profits partly because of fewer mergers and initial public offerings on Wall Street. JPMorgan even reported that it was setting funds aside to protect against losses in the event of a downturn. Yet its chief executive, Jamie Dimon, said Americans are better situated to withstand a recession than they were before the financial crisis.

For families, the economy feels more dire. Americans are facing higher prices on everyday essentials like food, gas and housing. New inflation figures released Wednesday showed that prices have risen 9.1 percent in the past year, exceeding economists’ expectations and putting renewed pressure on the Fed to move aggressively to cool the economy.

There are also growing fears that a sharp Fed move could, in turn, could tip the U.S. economy into recession.

“It’s hard to find much encouraging news in the latest inflation report,” said Karen Dynan, an economist at Harvard University and former economist at the Federal Reserve Board. “This was the most important data point the Fed will get prior to its meeting later this month, and it’s probably going to have to intervene more aggressively than it had hoped to in order to restrain demand. And it also raises the odds that they cannot achieve that without a downturn.”

The blistering June inflation report raised questions about whether Fed officials would move even more aggressively to tame inflation at their upcoming policy meeting. Inflation notched yet another peak last month, zapping any hope that the Fed’s moves so far were bringing prices down.

For weeks, policymakers have leaned toward another hike of three-quarters of a percentage point, mirroring the increase they adopted in June. But it was unclear whether they would start to show support for a hike of a full percentage point before their July 26-27 policy meeting.

So far, officials appear to be sticking to their original message. And if anything, they are warning against reacting too suddenly to one bucket of data. On Thursday, Christopher Waller, a member of the Fed’s Board of Governors, said that even though the latest consumer price index report was “a major league disappointment,” there were hazards to snap policy decisions.

“You don’t want to overdo the rate hikes,” Waller said. “A 75 basis-point hike is huge. Don’t think because you’re not going 100, you’re not doing your job.”

The message was echoed by St. Louis Fed President Jim Bullard, who told Nikkei Asia that his preference was to stick to a hike of three-quarters of a percentage point for now. San Francisco Fed President Mary Daly told the New York Times that even though she expected a brutal inflation report, she still favors a hike of three-quarters of a percentage point.

An outlier is Atlanta Fed President Raphael Bostic, who does not have a vote on the Fed’s policy committee this year. Asked about the possibility of a hike of a full percentage point on Wednesday, Bostic told reporters that “everything is in play.”

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At 75, India seeks way forward in big but job-scarce economy – Financial Post

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NEW DELHI (AP) — As India’s economy grew, the hum of factories turned the sleepy, dusty village of Manesar into a booming industrial hub, cranking out everything from cars and sinks to smartphones and tablets. But jobs have run scarce over the years, prompting more and more workers to line up along the road for work, desperate to earn money.

Every day, Sugna, a young woman in her early 20s who goes by her first name, comes with her husband and two children to the city’s labor chowk — a bazaar at the junction of four roads where hundreds of workers gather daily at daybreak to plead for work. It’s been days since she or her husband got work and she has only five rupees (six cents) in hand.

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Scenes like this are an everyday reality for millions of Indians, the most visible signs of economic distress in a country where raging unemployment is worsening insecurity and inequality between the rich and poor. It’s perhaps Prime Minister Narendra Modi’s biggest challenge as the country marks 75 years of independence from British rule on Monday.

“We get work only once or twice a week,” said Sugna, who says she earned barely 2,000 rupees ($25) in the past five months. “What should I do with a life like this? If I live like this, how will my children live any better?”

Entire families leave their homes in India’s vast rural hinterlands to camp at such bazaars, found in nearly every city. Out of the many gathered in Manesar recently, only a lucky few got work for the day — digging roads, laying bricks and sweeping up trash for meager pay — about 80% of Indian workers toil in informal jobs including many who are self-employed.

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India’s phenomenal transformation from an impoverished nation in 1947 into an emerging global power whose $3 trillion economy is Asia’s third largest has turned it into a major exporter of things like software and vaccines. Millions have escaped poverty into a growing, aspirational middle class as its high-skilled sectors have soared.

“It’s extraordinary — a poor country like India wasn’t expected to succeed in such sectors,” said Nimish Adhia, an economics professor at Manhattanville College.

This year, the economy is forecast to expand at a 7.4% annual pace, according to the International Monetary Fund, making it one of the world’s fastest growing.

But even as India’s economy swells, so has joblessness. The unemployment rate remains at 7% to 8% in recent months. Only 40% of working age Indians are employed, down from 46% five years ago, the Center for Monitoring the Indian Economy (CMIE) says.

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“If you look at a poor person in 1947 and a poor person now, they are far more privileged today. However if you look at it between the haves and the have nots, that chasm has grown,” said Gayathri Vasudevan, chairperson of LabourNet, a social enterprise.

“While India continues to grow well, that growth is not generating enough jobs – crucially, it is not creating enough good quality jobs,” said Mahesh Vyas, chief executive at CMIE. Only 20% of jobs in India are in the formal sector, with regular wages and security, while most others are precarious and low-quality with few to no benefits.

That’s partly because agriculture remains the mainstay, with about 40% of workers engaged in farming.

As workers lost jobs in cities during the pandemic, many flocked back to farms, pushing up the numbers. “This didn’t necessarily improve productivity – but you’re employed as a farmer. It’s disguised unemployment,” Vyas said.

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With independence from Britain in 1947, the country’s leaders faced a formidable task: GDP was a mere 3% of the world’s total, literacy rates stood at 14% and the average life expectancy was 32 years, said Adhia.

By the most recent measures, literacy stands at 74% and life expectancy at 70 years. Dramatic progress came with historic reforms in the 1990s that swept away decades of socialist control over the economy and spurred remarkable growth.

The past few decades inspired comparisons to China as foreign investment poured in, exports thrived and new industries — like information technology – were born. But India, a latecomer to offshoring by Western multinationals, is struggling to create mass employment through manufacturing. And it faces new challenges in plotting a way forward.

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Financing has tended to flow into profitable, capital intensive sectors like petrol, metal and chemicals. Industries employing large numbers of workers, like textiles and leather work, have faltered. This trend continued through the pandemic: despite Modi’s 2014 ‘Make in India’ pitch to turn the country into another factory floor for the world, manufacturing now employs around 30 million. In 2017, it employed 50 million, according to CMIE data.

As factory and private sector employment shrink, young jobseekers increasingly are targeting government jobs, coveted for their security, prestige and benefits.

Some, like 21-year-old Sahil Rajput, view such work as a way out of poverty. Rajput has been fervently preparing for a job in the army, working in a low-paid data-entry job to afford private coaching to become a soldier and support his unemployed parents.

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But in June, the government overhauled military recruitment to cut costs and modernize, changing long-term postings into four-year contracts after which only 25% of recruits will be retained. That move triggered weeks of protests, with young people setting vehicles on fire.

Rajput knows he might not be able to get a permanent army job. “But I have no other options,” he said. “How can I dream of a future when my present is in tatters?”

The government is banking on technology, a rare bright spot, to create new jobs and opportunities. Two decades ago, India became an outsourcing powerhouse as companies and call centers boomed. An explosion of start-ups and digital innovation aims to recreate that success – “India is now home to 75,000 startups in the 75th year of independence and this is only the beginning,” Minister of Commerce, Piyush Goyal, tweeted recently. More than 740,000 jobs have been created via start-ups, a 110% jump over the last six years, his ministry said.

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There’s still a long way to go, in educating and training a labor force qualified for such work. Another worry is the steady retreat of working women in India — from a high of nearly 27% in 2005 to just over 20% in 2021, according to World Bank data.

Meanwhile, the stopgap of farming appears increasingly precarious as climate change brings extreme temperatures, scorching crops.

Sajan Arora, a 28-year-old farmer in India’s breadbasket state of Punjab, can no longer depend on ancestral farmland his family has relied on to survive. He, his wife and seven-month old daughter, plan to join family in Britain and find work there after selling some land.

“Agriculture has no way forward,” said Arora, saying he will do whatever work he can get, driving a taxi, working in a store or on a construction site.

He’s sad to leave his parents and childhood home behind, but believes the uncertainty of change offers “better prospects” than his current reality.

“If everything was right and well, why would we go? If we want a better life, we will have to leave,” he said.

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Our roller-coaster economy – Maclean’s

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At some point in the last couple of years, the word “unprecedented” had been used so often that it lost all of its potency. First it referred to wave after wave of the coronavirus that upended supply chains and our very way of life. Now, it applies to every cranny of the Canadian economy. In February, financial analysts were left breathless as the country’s annual inflation rate surpassed five per cent for the first time in more than 30 years. Then, spurred by runaway gas prices, along came another jump: in May, Canada’s inflation rate hit 7.7 per cent. In June, 8.1. Again: wow.

This economic turbulence is old news to anyone who has recently tried to buy groceries, get a car, fuel up their car or do virtually anything involving money. Now overheard in Canada: “Since when does an Ubered dinner for two cost $65?”; “Why can’t I find anyone to hire in a country of 31 million?”; and “Where the heck are all the rental cars?”

The central question, though, is how everything got to be so fiscally wacky, seemingly all at once—and how to make it all better. In the following pages, a team of the country’s smartest economic thinkers and industry experts examine some of Canada’s current hot spots and, where possible, offer their two cents on how to transform them.

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The easing of inflation pressures is giving the economy some breathing room, for now – CNBC

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A shopping cart is seen in a supermarket as inflation affected consumer prices in Manhattan, New York City, U.S., June 10, 2022.
Andrew Kelly | Reuters

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.

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