REUTERS
"Fed needs mortgage-backed securities exit plan 'earlier than later,' George says"
By Howard Schneider
JANUARY 23, 2023
WASHINGTON (Reuters) - Kansas City Federal Reserve President Esther George has urged her colleagues to come to terms “earlier than later” on a plan for the U.S. central bank to exit the mortgage-backed securities (MBS) market and be more explicit on how bond purchases will figure into future monetary policy.
“You can’t just wake up one day and say, ‘hey, we’re going to get out of this business,’” George, who is retiring from her position at the end of this month, told Reuters in an interview published on Monday.
She noted that Fed officials agree in principle that the central bank’s securities portfolio should only include those assets issued by the U.S. Treasury - not those backed by home mortgages - but don’t yet have a plan to get there.
The Fed currently holds about $2.6 trillion of MBS as part of its roughly $8 trillion securities portfolio.
That is about a quarter of the total MBS market, what George referred to as an “enormous” share that raises questions about the appropriate extent of the central bank’s presence.
George, whose last day before retiring is Jan. 31, will not participate in the Jan. 31-Feb. 1 policy meeting.
She spoke to Reuters before the start last Saturday of the “blackout” period that restricts Fed officials from making public comments about policy in the run-up to meetings.
The Fed is trying to reduce its balance sheet overall as part of the plan to tighten monetary policy, and is allowing up to $60 billion a month in Treasury securities and $35 billion in MBS to mature and “run off” from its holdings.
In theory, that puts upward pressure on long-term interest rates by lowering demand for those assets.
But, in the case of MBS, high interest rates also slow the pace of the run-off since it discourages both the home sales and the refinancings that, because existing mortgages get paid off, decrease the principal of MBS quicker than would occur only through monthly payments by homeowners.
‘NOT IN MY DNA’
Since the Fed began to let its balance sheet decline in June, its MBS holdings have fallen by about $67 billion, or roughly 2.5%, a pace that would leave the central bank in the mortgage market for years to come.
Several Fed officials have said the central bank will eventually need to sell its MBS holdings.
George said she did not have a specific plan in mind, but felt her colleagues should get to work on one.
“At some point people will have to address: is that the footprint we want in the mortgage market?” George said of the current holdings.
More important than the details of any plan “is just to say how will we go about doing that earlier rather than later."
"There could be many combinations of things that get you there.”
George, 65, has been head of the Kansas City Fed since October 2011.
She has been among the central bank’s more frequent dissenters, and a particular skeptic of both quantitative easing - the use of bond purchases to support markets and the economy - and the 2% inflation target adopted shortly after her arrival.
“I’ve never felt comfortable saying we should want inflation."
"It’s not in my DNA,” said George, whose roots are in Midwestern family farming, an industry that was particularly damaged by the high-inflation, high-interest-rate environment of the 1970s and 1980s.
‘OUT OF THE BOX’
George said she feels the Fed’s balance sheet continues to get “too little attention” in terms of how the central bank’s slow withdrawal from long-term securities markets could, for example, influence the yield curve given the fast hikes in U.S. short-term interest rates delivered last year.
The Fed hiked its benchmark overnight interest rate by 4.25 percentage points in 2022 to tame inflation that had surged to 40-year highs.
It is widely expected next week to raise that rate by a quarter of a percentage point to the 4.50%-4.75% range.
More broadly, George said, after twice launching bond purchases to support the economy, once following the 2007-2009 financial crisis and recession, and again at the onset of the COVID-19 pandemic after interest rates were cut to the near-zero level, she said the central bank should develop clearer guidelines for when the purchases are to be used, and what impact on the economy they are seen to have.
During the pandemic, for example, the Fed was buying MBS and, in theory, pushing down mortgage rates, even though house prices were skyrocketing.
Given that the Fed now uses its balance sheet to manage the short-term policy rate of interest, George feels it would be difficult, at the least, to return to the limited holdings the Fed had prior to the 2007 housing market meltdown.
But she said her time on the central bank’s policy-setting Federal Open Market Committee has not convinced her that bond purchases have much influence beyond inflating asset values - something future policymakers should confront.
Quantitative easing “is out of the box and now future committees will have to think about how to manage it,” George said.
“I think economists have a lot more work to do on understanding this instrument."
"I think a lot of time was spent defending what its benefits were."
"I think too little attention has been paid to its consequences.”
Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao
https://www.reuters.com/article/usa-fed ... SL1N3481AE
THE ECONOMY
Re: THE ECONOMY
FOX NEWS
"Biden dragged for touting gas price drop as Americans struggle to make ends meet: 'What planet are you on?'"
Story by Yael Halon
23 JANUARY 2023
President Biden came under fire on Monday for touting a decline in fuel prices after months of dodging responsibility for record-high prices in 2022.
"Gas prices are down around $1.60 a gallon from their peak this summer – and my Administration will keep working to lower costs for American families," Biden tweeted on Monday.
The White House has repeatedly deflected responsibility for the rise in gas prices, arguing at various that times COVID-19, the supply chain crisis, and Russia's invasion of Ukraine were to blame.
Biden's victory lap did not sit well with many on Twitter, who scolded the president's rush to take credit for the fall in gas prices while disregarding the harsh economic realities still plaguing everyday Americans who struggle to make ends meet.
"You can't take credit for low(er) gas prices but not higher gas prices," Forbes contributor Jeff Kart replied.
RNC rapid response director Tommy Pigott tweeted, "Gas prices are up $1.03 a gallon from when Joe Biden took office."
"Biden's administration continues to undermine American energy."
"Families have lost $2,250 paying higher energy costs since he took office."
Comedian Tim Young cautioned Biden against patting himself on the back, pointing out that gas prices under his administration are "still nearly double what they were under Trump...'"
Mario Fratto, a former U.S. House candidate, tweeted, "They went up because of your failure."
"I broke it, and I’m the only one who can fix it!"
"Joe Biden."
Republican nominee for Florida's 14th Congressional District James Judge posted several recent headlines citing an increase in gas prices before asking the president, "What planet are you living on?"
"So you’re saying presidents DO control gas prices… Interesting!" American school safety advocate JT Lewis responded.
Photographer Thomas Hawk wondered, "If it was the "Putin Price hikes" that made the prices go up, are these then the "Putin price cuts" bringing gas prices back down"
Other others urged the president to address the sky-high grocery costs before boasting about the economic accomplishments of his administration.
"Eggs are $10," a user who goes by "Rager" observed.
"Did You Say the Reason The Price of Eggs is High is Because Of Chicken Pox ???" NFL middle linebacker Boomer Mays quipped.
A forecast by GasBuddy found that the yearly national average gas price is forecast to drop nearly 50 cents per gallon from that of 2022 to $3.49 cents, but prices are expected to return to the $4 per gallon range as early as May 2023.
Fox Business' Chris Pandolfo contributed to this report.
https://www.msn.com/en-us/money/markets ... 2e23612077
"Biden dragged for touting gas price drop as Americans struggle to make ends meet: 'What planet are you on?'"
Story by Yael Halon
23 JANUARY 2023
President Biden came under fire on Monday for touting a decline in fuel prices after months of dodging responsibility for record-high prices in 2022.
"Gas prices are down around $1.60 a gallon from their peak this summer – and my Administration will keep working to lower costs for American families," Biden tweeted on Monday.
The White House has repeatedly deflected responsibility for the rise in gas prices, arguing at various that times COVID-19, the supply chain crisis, and Russia's invasion of Ukraine were to blame.
Biden's victory lap did not sit well with many on Twitter, who scolded the president's rush to take credit for the fall in gas prices while disregarding the harsh economic realities still plaguing everyday Americans who struggle to make ends meet.
"You can't take credit for low(er) gas prices but not higher gas prices," Forbes contributor Jeff Kart replied.
RNC rapid response director Tommy Pigott tweeted, "Gas prices are up $1.03 a gallon from when Joe Biden took office."
"Biden's administration continues to undermine American energy."
"Families have lost $2,250 paying higher energy costs since he took office."
Comedian Tim Young cautioned Biden against patting himself on the back, pointing out that gas prices under his administration are "still nearly double what they were under Trump...'"
Mario Fratto, a former U.S. House candidate, tweeted, "They went up because of your failure."
"I broke it, and I’m the only one who can fix it!"
"Joe Biden."
Republican nominee for Florida's 14th Congressional District James Judge posted several recent headlines citing an increase in gas prices before asking the president, "What planet are you living on?"
"So you’re saying presidents DO control gas prices… Interesting!" American school safety advocate JT Lewis responded.
Photographer Thomas Hawk wondered, "If it was the "Putin Price hikes" that made the prices go up, are these then the "Putin price cuts" bringing gas prices back down"
Other others urged the president to address the sky-high grocery costs before boasting about the economic accomplishments of his administration.
"Eggs are $10," a user who goes by "Rager" observed.
"Did You Say the Reason The Price of Eggs is High is Because Of Chicken Pox ???" NFL middle linebacker Boomer Mays quipped.
A forecast by GasBuddy found that the yearly national average gas price is forecast to drop nearly 50 cents per gallon from that of 2022 to $3.49 cents, but prices are expected to return to the $4 per gallon range as early as May 2023.
Fox Business' Chris Pandolfo contributed to this report.
https://www.msn.com/en-us/money/markets ... 2e23612077
Re: THE ECONOMY
REUTERS
"U.S. business activity still soft in early 2023, but outlook perks up"
Reuters
January 24, 2023
NEW YORK, Jan 24 (Reuters) - U.S. business activity contracted for the seventh straight month in January, though the downturn moderated across both the manufacturing and services sectors for the first time since September and business confidence strengthened as the new year began.
At the same time, however, a survey from S&P Global out Tuesday showed price pressures ticking higher for the first time since last spring, indicating that inflation is far from licked despite aggressive measures to contain it by the U.S. Federal Reserve.
That lifts the odds the U.S. central bank may need to keep up the pressure through higher interest rates, including at next week's first policy meeting of the year.
S&P Global's Flash U.S. Composite Output Index rose to 46.6 in January - with readings below 50 indicating contraction in activity - from a final reading of 45.0 in December.
While that was the highest in three months, companies still reported demand was soft and high inflation was a headwind to customer spending.
On the manufacturing side, S&P Global's flash Manufacturing PMI came in at 46.8 this month, up from 46.2 in December and exceeding the median estimate of 46.0 in a poll of economists by Reuters.
In the vast services sector, accounting for two-thirds of U.S. economic output, the pace of contraction moderated to 46.6 in January from 44.7 last month.
That also exceeded the median estimate in the Reuters poll of 45.0.
Meanwhile, the survey's measures of input prices for both services firms and goods producers rose month-over-month for the first time since May.
“The worry is that, not only has the survey indicated a downturn in economic activity at the start of the year, but the rate of input cost inflation has accelerated into the new year, linked in part to upward wage pressures, which could encourage a further aggressive tightening of Fed policy despite rising recession risks,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.
Last year the Fed - after being slow to recognize that surging inflation was not the transitory phenomenon it had hoped it would be - raised its benchmark rate from near zero in March to a range of 4.25% to 4.50% in December.
It was the most aggressive monetary policy tightening since the 1980s and was aimed at bringing inflation back to its target of 2% annually.
After peaking at 7% in June, inflation by the Fed's preferred measure had receded to 5.5% as of November.
That gauge - the Personal Consumption Expenditures price index - will be updated for December later this week, and while it is seen having moderated further last month, it remains far too high for the liking of Fed officials meeting next week on Jan. 31-Feb. 1.
Another quarter-percentage point increase is expected enroute to a policy rate officials see rising above 5% this year.
The S&P Global survey is the latest indicator to show the U.S. economy is cooling off -- largely in response to the Fed's rate hikes -- but whether it falls into recession remains an unsettled issue.
Even as consumer demand for goods has shown notable cooling as Fed rate hikes make purchases like homes and motor vehicles more expensive, other indicators signal demand for services remains on more solid footing.
Moreover, despite growing anecdotal evidence of companies reducing hiring and in some cases laying off staff, the U.S. job market remains tight.
There has been little by way of an increase in jobless benefits rolls as the new year began, and the national unemployment rate was 3.5% in December, back to the half-century lows recorded right before the pandemic.
The S&P Global survey's forward-looking indexes did show improved confidence in the outlook, indicating businesses expect the situation to improve later in the year.
"The pick-up in positive sentiment was broad-based, with companies hopeful of a resurgence in customer demand as 2023 progresses," it said.
Reporting by Dan Burns; Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/us-b ... 023-01-24/
"U.S. business activity still soft in early 2023, but outlook perks up"
Reuters
January 24, 2023
NEW YORK, Jan 24 (Reuters) - U.S. business activity contracted for the seventh straight month in January, though the downturn moderated across both the manufacturing and services sectors for the first time since September and business confidence strengthened as the new year began.
At the same time, however, a survey from S&P Global out Tuesday showed price pressures ticking higher for the first time since last spring, indicating that inflation is far from licked despite aggressive measures to contain it by the U.S. Federal Reserve.
That lifts the odds the U.S. central bank may need to keep up the pressure through higher interest rates, including at next week's first policy meeting of the year.
S&P Global's Flash U.S. Composite Output Index rose to 46.6 in January - with readings below 50 indicating contraction in activity - from a final reading of 45.0 in December.
While that was the highest in three months, companies still reported demand was soft and high inflation was a headwind to customer spending.
On the manufacturing side, S&P Global's flash Manufacturing PMI came in at 46.8 this month, up from 46.2 in December and exceeding the median estimate of 46.0 in a poll of economists by Reuters.
In the vast services sector, accounting for two-thirds of U.S. economic output, the pace of contraction moderated to 46.6 in January from 44.7 last month.
That also exceeded the median estimate in the Reuters poll of 45.0.
Meanwhile, the survey's measures of input prices for both services firms and goods producers rose month-over-month for the first time since May.
“The worry is that, not only has the survey indicated a downturn in economic activity at the start of the year, but the rate of input cost inflation has accelerated into the new year, linked in part to upward wage pressures, which could encourage a further aggressive tightening of Fed policy despite rising recession risks,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.
Last year the Fed - after being slow to recognize that surging inflation was not the transitory phenomenon it had hoped it would be - raised its benchmark rate from near zero in March to a range of 4.25% to 4.50% in December.
It was the most aggressive monetary policy tightening since the 1980s and was aimed at bringing inflation back to its target of 2% annually.
After peaking at 7% in June, inflation by the Fed's preferred measure had receded to 5.5% as of November.
That gauge - the Personal Consumption Expenditures price index - will be updated for December later this week, and while it is seen having moderated further last month, it remains far too high for the liking of Fed officials meeting next week on Jan. 31-Feb. 1.
Another quarter-percentage point increase is expected enroute to a policy rate officials see rising above 5% this year.
The S&P Global survey is the latest indicator to show the U.S. economy is cooling off -- largely in response to the Fed's rate hikes -- but whether it falls into recession remains an unsettled issue.
Even as consumer demand for goods has shown notable cooling as Fed rate hikes make purchases like homes and motor vehicles more expensive, other indicators signal demand for services remains on more solid footing.
Moreover, despite growing anecdotal evidence of companies reducing hiring and in some cases laying off staff, the U.S. job market remains tight.
There has been little by way of an increase in jobless benefits rolls as the new year began, and the national unemployment rate was 3.5% in December, back to the half-century lows recorded right before the pandemic.
The S&P Global survey's forward-looking indexes did show improved confidence in the outlook, indicating businesses expect the situation to improve later in the year.
"The pick-up in positive sentiment was broad-based, with companies hopeful of a resurgence in customer demand as 2023 progresses," it said.
Reporting by Dan Burns; Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/us-b ... 023-01-24/
Re: THE ECONOMY
REUTERS
"Microsoft's dour outlook raises red flags for tech sector"
By Nivedita Balu and Tiyashi Datta
January 25, 2023
Jan 25 (Reuters) - Microsoft Corp's lackluster quarterly outlook points to more gloom ahead for the tech sector, analysts said, after the tech bellwether warned that its customers were cautious about spending in a turbulent economy.
The warning from Microsoft, the second most valuable U.S. company, came after a steep fall in client spending prompted tech heavyweights from Amazon.com Inc to Meta Platforms to slash jobs and save cash.
Microsoft, along with Big Tech peers Amazon and Apple Inc, pared losses from earlier on Wednesday to trade nearly 1% lower.
Alphabet Inc was down 3%.
The companies are four of the biggest by market value in the United States.
Shares of cloud companies including IBM Corp and Oracle Corp all declined.
IBM is scheduled to report fourth-quarter results later in the day.
Microsoft Chief Executive Satya Nadella and other company executives used the words "caution" and "cautious" at least six times on the one-hour call on Tuesday.
"The rate of Microsoft's revenue slowdown should be seen as a warning sign for the wider tech sector," Hargreaves Lansdown analyst Sophie Lund-Yates said.
Analysts expect other tech executives to follow Nadella in laying out a conservative outlook.
"What we learned is that no one is immune to macro ... what is telling is the quarter was largely fine, but we started to see softness in December and the outlook for this quarter was worse than expected," said Rishi Jaluria, analyst at RBC.
Microsoft forecast third-quarter revenue in its so-called intelligent cloud business a tad below market estimates, with a growth rate of as much as 19%.
The segment outperformed expectations in the second quarter, however, which initially boosted shares on Tuesday evening.
"That (the outlook) is taking the wind out of the sails," said Art Hogan, chief market strategist at B Riley Wealth.
Nadella, however, said Microsoft would focus on AI technology, calling it the next major wave of computing.
The tech giant has made multibillion dollar investments in OpenAI, deepening ties with the startup behind the chatbot sensation ChatGPT and building on a bet it made on AI four years ago.
With many tech companies now focusing on building their cash reserves, analysts expect the money to be used for other investments - from fresh buybacks, mergers and acquisitions or new technology such as artificial intelligence.
Reporting by Nivedita Balu and Tiyashi Datta in Bengaluru, additional reporting by Johann M Cherian and Yuvraj Malik; Editing by Krishna Chandra Eluri and Devika Syamnath
https://www.reuters.com/technology/micr ... 023-01-25/
"Microsoft's dour outlook raises red flags for tech sector"
By Nivedita Balu and Tiyashi Datta
January 25, 2023
Jan 25 (Reuters) - Microsoft Corp's lackluster quarterly outlook points to more gloom ahead for the tech sector, analysts said, after the tech bellwether warned that its customers were cautious about spending in a turbulent economy.
The warning from Microsoft, the second most valuable U.S. company, came after a steep fall in client spending prompted tech heavyweights from Amazon.com Inc to Meta Platforms to slash jobs and save cash.
Microsoft, along with Big Tech peers Amazon and Apple Inc, pared losses from earlier on Wednesday to trade nearly 1% lower.
Alphabet Inc was down 3%.
The companies are four of the biggest by market value in the United States.
Shares of cloud companies including IBM Corp and Oracle Corp all declined.
IBM is scheduled to report fourth-quarter results later in the day.
Microsoft Chief Executive Satya Nadella and other company executives used the words "caution" and "cautious" at least six times on the one-hour call on Tuesday.
"The rate of Microsoft's revenue slowdown should be seen as a warning sign for the wider tech sector," Hargreaves Lansdown analyst Sophie Lund-Yates said.
Analysts expect other tech executives to follow Nadella in laying out a conservative outlook.
"What we learned is that no one is immune to macro ... what is telling is the quarter was largely fine, but we started to see softness in December and the outlook for this quarter was worse than expected," said Rishi Jaluria, analyst at RBC.
Microsoft forecast third-quarter revenue in its so-called intelligent cloud business a tad below market estimates, with a growth rate of as much as 19%.
The segment outperformed expectations in the second quarter, however, which initially boosted shares on Tuesday evening.
"That (the outlook) is taking the wind out of the sails," said Art Hogan, chief market strategist at B Riley Wealth.
Nadella, however, said Microsoft would focus on AI technology, calling it the next major wave of computing.
The tech giant has made multibillion dollar investments in OpenAI, deepening ties with the startup behind the chatbot sensation ChatGPT and building on a bet it made on AI four years ago.
With many tech companies now focusing on building their cash reserves, analysts expect the money to be used for other investments - from fresh buybacks, mergers and acquisitions or new technology such as artificial intelligence.
Reporting by Nivedita Balu and Tiyashi Datta in Bengaluru, additional reporting by Johann M Cherian and Yuvraj Malik; Editing by Krishna Chandra Eluri and Devika Syamnath
https://www.reuters.com/technology/micr ... 023-01-25/
Re: THE ECONOMY
REUTERS
"U.S. inflation roller coaster prompts fresh look at long-ignored money supply"
By Michael S. Derby
January 26, 2023
NEW YORK, Jan 26 (Reuters) - The amount of money sloshing around the U.S. economy shrank last year for the first time on record, a development that some economists believe bolsters the case for U.S. inflation pressures continuing to abate.
The Federal Reserve's main measure of the nation’s money stock - known as M2 money supply - slid for a fifth straight month in December, dropping by a record $147.4 billion to a seasonally adjusted $21.2 trillion from the month before, data from the U.S. central bank released this week showed.
From a year earlier, the volume of cash, coins, checking and savings deposits, other small time deposits and cash parked in money market funds fell by nearly $300 billion and has fallen by more than $530 billion since last March when the Fed kicked off its aggressive - and ongoing - process to drain liquidity from the economy to combat high inflation.
M2 took off in March 2020 as the Fed slashed rates and started buying trillions of dollars in bonds to help support the economy as the coronavirus pandemic started, ultimately mushrooming by $6.3 trillion - a 40% increase - from its level right before the start of the crisis.
The recent decline in the money supply comes as the Fed has been aggressively raising rates to push inflation back to its 2% target.
Since last June, it has also cut its holdings of Treasury and mortgage bonds by $400 billion to roughly $8.5 trillion to augment that process, further stripping the economy of financial liquidity.
Money-supply purists have long argued that the country's ever-growing stock of money was an inflation powder keg.
It's an argument that lost credibility with policymakers in the record-long economic expansion before the pandemic when M2 rose by more than 80% but inflation never rose sustainably above the Fed's 2% target and spent much of that decade notably below it.
That dynamic changed in the last two years, though, with money supply trends moving in roughly the same direction as inflation pressures: As money supply rose rapidly into early 2022, so did inflation; since M2 started a persistent decline last summer, inflation pressures have also receded.
'A MONETARY PHENOMENON'
Some Fed officials are now taking renewed interest.
M2 “exploded during the pandemic, and correctly predicted that we would get inflation,” Federal Reserve Bank of St. Louis President James Bullard, an early proponent of policy tightening, said earlier this month.
“Inflation is certainly a monetary phenomenon” and “when you get a huge movement in money, then you do get the movement in inflation,” as was seen in the 1960s, ‘70s and ‘80s.
To be sure, measuring money supply is complicated, with no one way to do it.
The Fed itself has altered its approach, scrapping the publication of an even broader measure, called M3, in 2006.
Bullard, acknowledging the cooling off of money supply, said this downshift in money "bodes well for disinflation," which means the Fed is likely to face an enduring trend of lower price pressures.
A paper published this month by the Mercatus Center at George Mason University said that economists and policymakers would do well to keep an eye on money supply measures in the future.
"Money has all but disappeared from monetary policy analysis" given the economics profession's emphasis on the view monetary policy works by managing expectations about the future path of interest rates, wrote Joshua Hendrickson of the University of Mississippi.
Given money supply's better-than-expected track record on recent inflation issues, ignoring these numbers has been "misguided," he said.
Economists, meanwhile, are still taking on board whether money supply is something they need to pay greater mind to as they contemplate monetary policy and inflation.
"I think that what we are finding is that the relationship between changes in the money supply and inflation is far less linear" than had been previously understood, said Thomas Simons, economist with investment bank Jefferies.
Nevertheless, Simons said, it appears the Fed’s aggressive balance sheet expansion during the pandemic did have a bigger impact on inflation relative to recent decades.
Reporting by Michael S. Derby; Editing by Dan Burns and Andrea Ricci
https://www.reuters.com/markets/us/us-i ... 023-01-26/
"U.S. inflation roller coaster prompts fresh look at long-ignored money supply"
By Michael S. Derby
January 26, 2023
NEW YORK, Jan 26 (Reuters) - The amount of money sloshing around the U.S. economy shrank last year for the first time on record, a development that some economists believe bolsters the case for U.S. inflation pressures continuing to abate.
The Federal Reserve's main measure of the nation’s money stock - known as M2 money supply - slid for a fifth straight month in December, dropping by a record $147.4 billion to a seasonally adjusted $21.2 trillion from the month before, data from the U.S. central bank released this week showed.
From a year earlier, the volume of cash, coins, checking and savings deposits, other small time deposits and cash parked in money market funds fell by nearly $300 billion and has fallen by more than $530 billion since last March when the Fed kicked off its aggressive - and ongoing - process to drain liquidity from the economy to combat high inflation.
M2 took off in March 2020 as the Fed slashed rates and started buying trillions of dollars in bonds to help support the economy as the coronavirus pandemic started, ultimately mushrooming by $6.3 trillion - a 40% increase - from its level right before the start of the crisis.
The recent decline in the money supply comes as the Fed has been aggressively raising rates to push inflation back to its 2% target.
Since last June, it has also cut its holdings of Treasury and mortgage bonds by $400 billion to roughly $8.5 trillion to augment that process, further stripping the economy of financial liquidity.
Money-supply purists have long argued that the country's ever-growing stock of money was an inflation powder keg.
It's an argument that lost credibility with policymakers in the record-long economic expansion before the pandemic when M2 rose by more than 80% but inflation never rose sustainably above the Fed's 2% target and spent much of that decade notably below it.
That dynamic changed in the last two years, though, with money supply trends moving in roughly the same direction as inflation pressures: As money supply rose rapidly into early 2022, so did inflation; since M2 started a persistent decline last summer, inflation pressures have also receded.
'A MONETARY PHENOMENON'
Some Fed officials are now taking renewed interest.
M2 “exploded during the pandemic, and correctly predicted that we would get inflation,” Federal Reserve Bank of St. Louis President James Bullard, an early proponent of policy tightening, said earlier this month.
“Inflation is certainly a monetary phenomenon” and “when you get a huge movement in money, then you do get the movement in inflation,” as was seen in the 1960s, ‘70s and ‘80s.
To be sure, measuring money supply is complicated, with no one way to do it.
The Fed itself has altered its approach, scrapping the publication of an even broader measure, called M3, in 2006.
Bullard, acknowledging the cooling off of money supply, said this downshift in money "bodes well for disinflation," which means the Fed is likely to face an enduring trend of lower price pressures.
A paper published this month by the Mercatus Center at George Mason University said that economists and policymakers would do well to keep an eye on money supply measures in the future.
"Money has all but disappeared from monetary policy analysis" given the economics profession's emphasis on the view monetary policy works by managing expectations about the future path of interest rates, wrote Joshua Hendrickson of the University of Mississippi.
Given money supply's better-than-expected track record on recent inflation issues, ignoring these numbers has been "misguided," he said.
Economists, meanwhile, are still taking on board whether money supply is something they need to pay greater mind to as they contemplate monetary policy and inflation.
"I think that what we are finding is that the relationship between changes in the money supply and inflation is far less linear" than had been previously understood, said Thomas Simons, economist with investment bank Jefferies.
Nevertheless, Simons said, it appears the Fed’s aggressive balance sheet expansion during the pandemic did have a bigger impact on inflation relative to recent decades.
Reporting by Michael S. Derby; Editing by Dan Burns and Andrea Ricci
https://www.reuters.com/markets/us/us-i ... 023-01-26/
Re: THE ECONOMY
REUTERS
"Intel sees more losses as PC makers sharply cut chip buying; shares slump"
By Jane Lanhee Lee and Chavi Mehta
January 26, 2023
Jan 26 (Reuters) - Intel Corp said on Thursday it expects to lose money in the current quarter, surprising investors with a bleaker-than-expected outlook for both the PC market and slowing growth in its key data center division.
The company's shares fell 8% in trading after the bell.
Two of Intel's most important markets are showing signs of weakness after two years of strong growth as remote work boomed during the pandemic.
Now, the PC industry is struggling with a glut of chips after demand for consumer electronics fell off a cliff and business customers wary of a recession are slowing spending on data centers.
"We expect some of the largest inventory corrections literally that we've ever seen in the industry taking place that's affecting the Q1 guide in a meaningful way," Intel Chief Executive Pat Gelsinger told Reuters.
"Everything hinges on the PC market recovery."
"AMD isn’t immune to this either," said Wayne Lam, an analyst at CCS Insight about Intel rival Advanced Micro Devices Inc.
"Don’t think we’ve seen the bottom for INTC..."
"They are not running a sustainable business model."
Intel expects profit margins to fall further after dropping from 58.4% in the fourth quarter of 2020 to 39.2% in the fourth quarter of 2022.
"Its safe to say that ambitions to return to a 60% margin in the future is light years away," said CFRA Research analyst Angelo Zino.
Shares of other microchip companies fell as well, with AMD down 2.6% and Nvidia Corp down 2%.
PC shipments fell 16.5% to 292.3 million units in 2022, per data from research firm IDC, forcing chipmakers to cut back production and slash revenue forecasts.
Shrinking PC demand also pressured Microsoft Corp's More Personal Computing segment, which includes Windows, devices and search revenue, leading to a 19% drop in the segment in its second quarter.
Meanwhile, the data center market has also slowed from double-digit growth as businesses cut costs to ride out an economic slowdown.
After Gelsinger returned to the company nearly two years ago, Intel has focused on regaining the lead in chipmaking technology.
Outsourcing the chipmaking process has helped rivals like AMD make much smaller and faster chips and outpace Intel's technology.
The company forecast first-quarter revenue in the range of about $10.5 billion to $11.5 billion.
Analysts on average were expecting total revenue of $13.93 billion, according to Refinitiv data.
The company expects an adjusted loss of 15 cents per share versus expectations of a 24 cents per share profit.
Revenue in the fourth quarter fell 32% to $14 billion.
Analysts on average expected revenue of $14.46 billion.
Reporting by Chavi Mehta in Bengaluru; Editing by Sriraj Kalluvila and David Gregorio
https://www.reuters.com/technology/inte ... 023-01-26/
"Intel sees more losses as PC makers sharply cut chip buying; shares slump"
By Jane Lanhee Lee and Chavi Mehta
January 26, 2023
Jan 26 (Reuters) - Intel Corp said on Thursday it expects to lose money in the current quarter, surprising investors with a bleaker-than-expected outlook for both the PC market and slowing growth in its key data center division.
The company's shares fell 8% in trading after the bell.
Two of Intel's most important markets are showing signs of weakness after two years of strong growth as remote work boomed during the pandemic.
Now, the PC industry is struggling with a glut of chips after demand for consumer electronics fell off a cliff and business customers wary of a recession are slowing spending on data centers.
"We expect some of the largest inventory corrections literally that we've ever seen in the industry taking place that's affecting the Q1 guide in a meaningful way," Intel Chief Executive Pat Gelsinger told Reuters.
"Everything hinges on the PC market recovery."
"AMD isn’t immune to this either," said Wayne Lam, an analyst at CCS Insight about Intel rival Advanced Micro Devices Inc.
"Don’t think we’ve seen the bottom for INTC..."
"They are not running a sustainable business model."
Intel expects profit margins to fall further after dropping from 58.4% in the fourth quarter of 2020 to 39.2% in the fourth quarter of 2022.
"Its safe to say that ambitions to return to a 60% margin in the future is light years away," said CFRA Research analyst Angelo Zino.
Shares of other microchip companies fell as well, with AMD down 2.6% and Nvidia Corp down 2%.
PC shipments fell 16.5% to 292.3 million units in 2022, per data from research firm IDC, forcing chipmakers to cut back production and slash revenue forecasts.
Shrinking PC demand also pressured Microsoft Corp's More Personal Computing segment, which includes Windows, devices and search revenue, leading to a 19% drop in the segment in its second quarter.
Meanwhile, the data center market has also slowed from double-digit growth as businesses cut costs to ride out an economic slowdown.
After Gelsinger returned to the company nearly two years ago, Intel has focused on regaining the lead in chipmaking technology.
Outsourcing the chipmaking process has helped rivals like AMD make much smaller and faster chips and outpace Intel's technology.
The company forecast first-quarter revenue in the range of about $10.5 billion to $11.5 billion.
Analysts on average were expecting total revenue of $13.93 billion, according to Refinitiv data.
The company expects an adjusted loss of 15 cents per share versus expectations of a 24 cents per share profit.
Revenue in the fourth quarter fell 32% to $14 billion.
Analysts on average expected revenue of $14.46 billion.
Reporting by Chavi Mehta in Bengaluru; Editing by Sriraj Kalluvila and David Gregorio
https://www.reuters.com/technology/inte ... 023-01-26/
Re: THE ECONOMY
REUTERS
"U.S. economy posts strong growth in Q4, but with underlying weakness"
By Lucia Mutikani
January 26, 2023
Summary
* Fourth-quarter GDP increases at 2.9% rate
* Consumer spending solid; business investment weakens
* Weekly jobless claims fall 6,000 to 186,000
WASHINGTON, Jan 26 (Reuters) - The U.S. economy grew faster than expected in the fourth quarter, but that likely exaggerates the nation's health as a measure of domestic demand rose at its slowest pace in 2-1/2 years, reflecting the impact of higher borrowing costs.
The Commerce Department's advance fourth-quarter gross domestic product report on Thursday showed half of the boost to growth came from a sharp rise in inventory held by businesses, some of which is likely unwanted.
While consumer spending maintained a solid pace of growth, a big chunk of the increase in consumption was early in the fourth quarter.
Retail sales weakened sharply in November and December.
Business spending on equipment contracted last quarter and is likely to remain on the backfoot as demand for goods softens.
It could be the last quarter of solid GDP growth before the lagged effects of the Federal Reserve's fastest monetary policy tightening cycle since the 1980s are fully felt.
Most economists expect a recession by the second half of the year, though a short and mild one compared to previous downturns, because of extraordinary labor market strength.
"The U.S. economy isn't falling off a cliff, but it is losing stamina and risks contracting early this year," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
"That should limit the Fed to just two more small rate increases in coming months."
Gross domestic product increased at a 2.9% annualized rate last quarter.
The economy grew at a 3.2% pace in the third quarter.
Economists polled by Reuters had forecast GDP would rise at a 2.6% rate.
Robust second-half growth erased the 1.1% contraction in the first six months of the year.
For 2022, the economy expanded 2.1%, down from the 5.9% logged in 2021.
The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 2.1% rate, mostly reflecting a rebound in goods spending at the start of the quarter, mostly on motor vehicles.
Consumers also spent on services like healthcare, housing, utilities and personal care.
Spending, which grew at a 2.3% pace in the third quarter, has been underpinned by labor market resilience as well as excess savings accumulated during the COVID-19 pandemic.
Income at the disposal of households after accounting for inflation increased at a 3.3% rate after rising at a 1.0% pace in the third quarter.
The saving rate rose to 2.9% from 2.7%.
But demand for long-lasting manufactured goods, which are mostly bought on credit, has fizzled and some households, especially lower income, have depleted their savings.
As a result, inventories surged at a $129.9 billion rate compared to a $38.7 billion rate in the prior quarter, adding 1.46 percentage points to GDP growth.
There also were contributions from government spending and a smaller trade deficit.
Stripping out inventories, government spending and trade, domestic demand increased at only a 0.2% rate.
That was the smallest increase in private domestic final sales since the second quarter of 2020 and was a deceleration from the third quarter's 1.1% pace.
"Rising inventories could bode poorly for growth in early 2023 as corporations may look to reduce excess stocks of goods," said Erik Norland, senior economist CME Group.
Stocks on Wall Street were trading higher.
The dollar rose against a basket of currencies.
Prices of U.S. Treasuries fell.
ROLLING RECESSION
Despite clear signs of a weak handover to 2023, some economists are cautiously optimistic the economy will skirt an outright recession, suffering instead a rolling downturn where sectors decline in turn rather than all at once.
They argue that monetary policy now acts with a shorter lag than was previously the case because of advances in technology and the U.S. central bank's transparency, which they said resulted in financial markets and the real economy acting in anticipation of rate hikes.
Though residential investment suffered its seventh straight quarterly decline, the longest such streak since the collapse of the housing bubble triggered the 2007-2009 Great Recession, there are signs the housing market could be stabilizing.
Mortgage rates have been trending lower as the Fed slows the pace of its rate hikes.
"A large portion of the reaction to higher interest rates is already in the economy and the financial markets," said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles.
"Since the Fed has succeeded in precipitating a rolling recession, it is time to think about an exit strategy."
Inflation also subsided in the fourth quarter.
A measure of inflation in the economy rose at a 3.2% rate, retreating from the third quarter's 4.8% pace of increase.
While many parts of the economy have shifted to lower gear, the labor market is showing no signs substantial cooling.
A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 186,000 for the week ended Jan. 21, the lowest level since April 2022.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 20,000 to 1.675 million for the week ended Jan. 14.
Companies outside the technology industry as well as interest-rate sensitive sectors like housing and finance are hoarding workers after struggling to find labor during the pandemic.
"There are no signs in the latest jobless claims data that the labor market is cracking at the start of the new year," said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci
https://www.reuters.com/markets/us/us-e ... 023-01-26/
"U.S. economy posts strong growth in Q4, but with underlying weakness"
By Lucia Mutikani
January 26, 2023
Summary
* Fourth-quarter GDP increases at 2.9% rate
* Consumer spending solid; business investment weakens
* Weekly jobless claims fall 6,000 to 186,000
WASHINGTON, Jan 26 (Reuters) - The U.S. economy grew faster than expected in the fourth quarter, but that likely exaggerates the nation's health as a measure of domestic demand rose at its slowest pace in 2-1/2 years, reflecting the impact of higher borrowing costs.
The Commerce Department's advance fourth-quarter gross domestic product report on Thursday showed half of the boost to growth came from a sharp rise in inventory held by businesses, some of which is likely unwanted.
While consumer spending maintained a solid pace of growth, a big chunk of the increase in consumption was early in the fourth quarter.
Retail sales weakened sharply in November and December.
Business spending on equipment contracted last quarter and is likely to remain on the backfoot as demand for goods softens.
It could be the last quarter of solid GDP growth before the lagged effects of the Federal Reserve's fastest monetary policy tightening cycle since the 1980s are fully felt.
Most economists expect a recession by the second half of the year, though a short and mild one compared to previous downturns, because of extraordinary labor market strength.
"The U.S. economy isn't falling off a cliff, but it is losing stamina and risks contracting early this year," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
"That should limit the Fed to just two more small rate increases in coming months."
Gross domestic product increased at a 2.9% annualized rate last quarter.
The economy grew at a 3.2% pace in the third quarter.
Economists polled by Reuters had forecast GDP would rise at a 2.6% rate.
Robust second-half growth erased the 1.1% contraction in the first six months of the year.
For 2022, the economy expanded 2.1%, down from the 5.9% logged in 2021.
The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 2.1% rate, mostly reflecting a rebound in goods spending at the start of the quarter, mostly on motor vehicles.
Consumers also spent on services like healthcare, housing, utilities and personal care.
Spending, which grew at a 2.3% pace in the third quarter, has been underpinned by labor market resilience as well as excess savings accumulated during the COVID-19 pandemic.
Income at the disposal of households after accounting for inflation increased at a 3.3% rate after rising at a 1.0% pace in the third quarter.
The saving rate rose to 2.9% from 2.7%.
But demand for long-lasting manufactured goods, which are mostly bought on credit, has fizzled and some households, especially lower income, have depleted their savings.
As a result, inventories surged at a $129.9 billion rate compared to a $38.7 billion rate in the prior quarter, adding 1.46 percentage points to GDP growth.
There also were contributions from government spending and a smaller trade deficit.
Stripping out inventories, government spending and trade, domestic demand increased at only a 0.2% rate.
That was the smallest increase in private domestic final sales since the second quarter of 2020 and was a deceleration from the third quarter's 1.1% pace.
"Rising inventories could bode poorly for growth in early 2023 as corporations may look to reduce excess stocks of goods," said Erik Norland, senior economist CME Group.
Stocks on Wall Street were trading higher.
The dollar rose against a basket of currencies.
Prices of U.S. Treasuries fell.
ROLLING RECESSION
Despite clear signs of a weak handover to 2023, some economists are cautiously optimistic the economy will skirt an outright recession, suffering instead a rolling downturn where sectors decline in turn rather than all at once.
They argue that monetary policy now acts with a shorter lag than was previously the case because of advances in technology and the U.S. central bank's transparency, which they said resulted in financial markets and the real economy acting in anticipation of rate hikes.
Though residential investment suffered its seventh straight quarterly decline, the longest such streak since the collapse of the housing bubble triggered the 2007-2009 Great Recession, there are signs the housing market could be stabilizing.
Mortgage rates have been trending lower as the Fed slows the pace of its rate hikes.
"A large portion of the reaction to higher interest rates is already in the economy and the financial markets," said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles.
"Since the Fed has succeeded in precipitating a rolling recession, it is time to think about an exit strategy."
Inflation also subsided in the fourth quarter.
A measure of inflation in the economy rose at a 3.2% rate, retreating from the third quarter's 4.8% pace of increase.
While many parts of the economy have shifted to lower gear, the labor market is showing no signs substantial cooling.
A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 186,000 for the week ended Jan. 21, the lowest level since April 2022.
The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 20,000 to 1.675 million for the week ended Jan. 14.
Companies outside the technology industry as well as interest-rate sensitive sectors like housing and finance are hoarding workers after struggling to find labor during the pandemic.
"There are no signs in the latest jobless claims data that the labor market is cracking at the start of the new year," said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci
https://www.reuters.com/markets/us/us-e ... 023-01-26/
Re: THE ECONOMY
REUTERS
"U.S. consumer spending ends 2022 on weaker footing; inflation slowing"
By Lucia Mutikani
January 27, 2023
Summary
* Consumer spending falls 0.2% in December
* Personal income increases 0.2%; savings rate rises to 3.4%
* Core PCE price index gains 0.3%; up 4.4% year-on-year
WASHINGTON, Jan 27 (Reuters) - U.S. consumer spending fell for a second straight month in December, putting the economy on a lower growth path heading into 2023, while inflation continued to subside, which could give the Federal Reserve room to further slow the pace of its interest rate hikes next week.
The report from the Commerce Department on Friday also showed the smallest gain in personal income in eight months, in part reflecting moderate wage growth, which does not bode well for consumer spending.
Though the drop in spending was mostly in the goods sector, services outlays essentially stalled.
"Hammered by higher prices and borrowing costs, and feeling less wealthy, U.S. households are cutting back, and will likely contribute to a contraction in GDP in the first quarter," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
"The good news is that they are also pushing back against price hikes, which will help the Fed tackle inflation and limit further rate hikes."
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, dropped 0.2% last month.
Data for November was revised lower to show spending slipping 0.1% instead of gaining 0.1% as previously reported.
Economists polled by Reuters had forecast consumer spending dipping 0.1%.
The data was included in the advance fourth-quarter gross domestic product report published on Thursday, which showed consumer spending maintaining a solid pace of growth and helping the economy to expand at a 2.9% annualized rate.
The weak handover to 2023 raises the risks of a recession by the second half of the year, but also reduces the need for the U.S. central bank to maintain an overly aggressive monetary policy stance.
The Fed's fastest rate hiking cycle since the 1980s has pushed the housing market into recession and manufacturing is in the early stages of a downturn.
Higher borrowing costs have undercut demand for goods, which are typically bought on credit.
In December, there was a broad decline in goods spending, partly reflecting lower gasoline prices, which undercut receipts at service stations.
Spending on long-lasting manufactured goods like motor vehicles, recreational goods and household furniture and equipment decreased 1.9%.
Durable goods spending plunged 3.0% in November.
Spending on nondurables like clothing and footwear declined 1.4% last month.
Though growth in spending on services is helping to anchor consumption, some households, especially those with lower incomes, have depleted savings accumulated during the COVID-19 pandemic, limiting the scope of gains.
Spending on services increased 0.5% last month, matching November's gain.
Services outlays were supported by housing and utilities, air travel, and healthcare, as well as recreation.
But Americans cut back spending at restaurants and bars.
That could have been the result of freezing temperatures or could be signaling consumers pulling back on discretionary spending as recession risks mount.
Stocks on Wall Street were mostly higher.
The dollar rose against a basket of currencies.
U.S. Treasury prices fell.
WAGE GAINS MODERATE
The personal consumption expenditures (PCE) price index edged up 0.1% last month after rising by the same margin in November.
In the 12 months through December, the PCE price index increased 5.0%.
That was the smallest year-on-year gain since September 2021 and followed a 5.5% advance in November.
Excluding the volatile food and energy components, the PCE price index gained 0.3% after climbing 0.2% in November.
The so-called core PCE price index rose 4.4% on a year-on-year basis in December, the smallest advance since October 2021, after increasing 4.7% in November.
The Fed tracks the PCE price indexes for monetary policy.
Other inflation measures have also slowed down significantly.
The improving inflation picture was underscored by the University of Michigan survey on Friday showing consumers' 12-month inflation expectations dropped to a 21-month low of 3.9% in January.
The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007.
Financial markets have priced in a 25-basis-point rate increase at the U.S. central bank's Jan. 31-Feb. 1 meeting, according to CME's FedWatch Tool.
"The economy isn't out of the woods when it comes to inflation, but monetary officials down in Washington are making progress in slowing the worrisome price increases seen in the first half of 2022," said Christopher Rupkey, chief economist at FWDBONDS in New York.
Adjusting for inflation, consumer spending fell 0.3% in December, the biggest decline in a year, after decreasing 0.2% in November.
This puts consumer spending on a lower growth base at the start of the first quarter.
With personal income rising 0.2%, the smallest gain since April, after increasing 0.3% in November, the outlook for spending is uncertain.
Wages rose 0.3%, matching November's increase.
But there is hope that the biggest cost of living adjustment since 1981 for more than 65 million Social Security beneficiaries, which came into effect in January, will limit the decline in consumer spending.
Retreating inflation is also lifting consumers' purchasing power.
Income at the disposal of households after accounting for inflation increased 0.2%.
The savings rate rose to a seven-month high of 3.4% from 2.9% in November, with revisions to previous data showing a more moderate pace of savings drawdown than previously estimated
"We estimate households still have about nine months of spending power if they continued to draw down excess saving at the pace they have the past six months," said Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina.
Reporting by Lucia Mutikani; Editing by Dan Burns, Jonathan Oatis and Andrea Ricci
https://www.reuters.com/markets/us/us-c ... 023-01-27/
"U.S. consumer spending ends 2022 on weaker footing; inflation slowing"
By Lucia Mutikani
January 27, 2023
Summary
* Consumer spending falls 0.2% in December
* Personal income increases 0.2%; savings rate rises to 3.4%
* Core PCE price index gains 0.3%; up 4.4% year-on-year
WASHINGTON, Jan 27 (Reuters) - U.S. consumer spending fell for a second straight month in December, putting the economy on a lower growth path heading into 2023, while inflation continued to subside, which could give the Federal Reserve room to further slow the pace of its interest rate hikes next week.
The report from the Commerce Department on Friday also showed the smallest gain in personal income in eight months, in part reflecting moderate wage growth, which does not bode well for consumer spending.
Though the drop in spending was mostly in the goods sector, services outlays essentially stalled.
"Hammered by higher prices and borrowing costs, and feeling less wealthy, U.S. households are cutting back, and will likely contribute to a contraction in GDP in the first quarter," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
"The good news is that they are also pushing back against price hikes, which will help the Fed tackle inflation and limit further rate hikes."
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, dropped 0.2% last month.
Data for November was revised lower to show spending slipping 0.1% instead of gaining 0.1% as previously reported.
Economists polled by Reuters had forecast consumer spending dipping 0.1%.
The data was included in the advance fourth-quarter gross domestic product report published on Thursday, which showed consumer spending maintaining a solid pace of growth and helping the economy to expand at a 2.9% annualized rate.
The weak handover to 2023 raises the risks of a recession by the second half of the year, but also reduces the need for the U.S. central bank to maintain an overly aggressive monetary policy stance.
The Fed's fastest rate hiking cycle since the 1980s has pushed the housing market into recession and manufacturing is in the early stages of a downturn.
Higher borrowing costs have undercut demand for goods, which are typically bought on credit.
In December, there was a broad decline in goods spending, partly reflecting lower gasoline prices, which undercut receipts at service stations.
Spending on long-lasting manufactured goods like motor vehicles, recreational goods and household furniture and equipment decreased 1.9%.
Durable goods spending plunged 3.0% in November.
Spending on nondurables like clothing and footwear declined 1.4% last month.
Though growth in spending on services is helping to anchor consumption, some households, especially those with lower incomes, have depleted savings accumulated during the COVID-19 pandemic, limiting the scope of gains.
Spending on services increased 0.5% last month, matching November's gain.
Services outlays were supported by housing and utilities, air travel, and healthcare, as well as recreation.
But Americans cut back spending at restaurants and bars.
That could have been the result of freezing temperatures or could be signaling consumers pulling back on discretionary spending as recession risks mount.
Stocks on Wall Street were mostly higher.
The dollar rose against a basket of currencies.
U.S. Treasury prices fell.
WAGE GAINS MODERATE
The personal consumption expenditures (PCE) price index edged up 0.1% last month after rising by the same margin in November.
In the 12 months through December, the PCE price index increased 5.0%.
That was the smallest year-on-year gain since September 2021 and followed a 5.5% advance in November.
Excluding the volatile food and energy components, the PCE price index gained 0.3% after climbing 0.2% in November.
The so-called core PCE price index rose 4.4% on a year-on-year basis in December, the smallest advance since October 2021, after increasing 4.7% in November.
The Fed tracks the PCE price indexes for monetary policy.
Other inflation measures have also slowed down significantly.
The improving inflation picture was underscored by the University of Michigan survey on Friday showing consumers' 12-month inflation expectations dropped to a 21-month low of 3.9% in January.
The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007.
Financial markets have priced in a 25-basis-point rate increase at the U.S. central bank's Jan. 31-Feb. 1 meeting, according to CME's FedWatch Tool.
"The economy isn't out of the woods when it comes to inflation, but monetary officials down in Washington are making progress in slowing the worrisome price increases seen in the first half of 2022," said Christopher Rupkey, chief economist at FWDBONDS in New York.
Adjusting for inflation, consumer spending fell 0.3% in December, the biggest decline in a year, after decreasing 0.2% in November.
This puts consumer spending on a lower growth base at the start of the first quarter.
With personal income rising 0.2%, the smallest gain since April, after increasing 0.3% in November, the outlook for spending is uncertain.
Wages rose 0.3%, matching November's increase.
But there is hope that the biggest cost of living adjustment since 1981 for more than 65 million Social Security beneficiaries, which came into effect in January, will limit the decline in consumer spending.
Retreating inflation is also lifting consumers' purchasing power.
Income at the disposal of households after accounting for inflation increased 0.2%.
The savings rate rose to a seven-month high of 3.4% from 2.9% in November, with revisions to previous data showing a more moderate pace of savings drawdown than previously estimated
"We estimate households still have about nine months of spending power if they continued to draw down excess saving at the pace they have the past six months," said Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina.
Reporting by Lucia Mutikani; Editing by Dan Burns, Jonathan Oatis and Andrea Ricci
https://www.reuters.com/markets/us/us-c ... 023-01-27/
Re: THE ECONOMY
FOX NEWS
"As Biden touts US economy, Americans struggling to make car payments - Severely delinquent car loans reach highest rate since financial crisis of 2009"
By Aaron Kliegman | Fox News
January 23, 2023
As President Biden touts the state of the U.S. economy under his stewardship, a striking number of Americans with auto loans are struggling to make their monthly payments.
The juxtaposition between Biden's rhetoric and the harsh economic realities for many people highlights what's become a constant thorn in the president's side: high inflation, which continues to eat away at household income, and public opinion disapproving of his handling of the economy.
Car loans are the latest sign of such economic problems.
Indeed, loans delinquent by more than two months increased by 5.3% in December compared to the prior month and skyrocketed by 26.7% from a year ago, according to recently released data from Cox Automotive.
Of all December loans, 1.84% were severely delinquent (generally defined as more than 90 days behind on payments), marking an increase from 1.74% in November and the highest rate since February 2009, when the financial crisis crippled the U.S. economy.
People with low credit scores and poor credit histories — those who received subprime auto loans — were especially behind on payments.
"In December, 7.11% of subprime loans were severely delinquent, increasing from 6.75% the prior month," Cox Automotive reported.
"The subprime severe delinquency rate was 163 basis points higher than a year ago, and the December rate was the highest in the data series back to 2006."
Despite more people missing loan payments, however, defaults on loans have yet to experience a similar surge.
Auto lenders generally don't consider the borrower to be in default until they're 90 to 120 days late of insufficient payments, indicating a potential surge in defaults in the coming months.
New figures showing people not making their car payments come as Americans are living paycheck to paycheck and not being able to afford basic necessities.
About 72% of middle-income families say their earnings are falling behind the cost of living, according to a quarterly survey from Primeric report.
A similar number, 74%, said they're unable to save for their future.
Both figures are up from a year ago.
Prices continue to remain high due to inflation, which reached a four-decade high last summer but has slowed over the last six months.
According to the latest data, consumer inflation in December increased by 6.5% compared to the same time a year ago — the smallest 12-month increase since October 2021.
Meanwhile, the inflation rate for producers in December rose 6.2% over the previous 12 months, the lowest level since March 2021.
"As inflation is coming down, take-home pay for workers is going up," Biden said in remarks on the economy earlier this month.
"Workers' wages are higher now than they were seven months ago, adjusted for inflation."
"Wages for lower-income and middle-income workers have gone up even more."
"It all adds up to a real break for consumers, real breathing room for families, and more proof that my economic plan is working."
However, while inflation is slowing, the most basic and fundamental costs of living — food and housing — have spiked.
Grocery prices are up 11.8% year-over-year, while shelter costs are up 7.5% from a year ago.
Despite Biden's comments, inflation has outpaced raw worker wages, which have consistently increased over the past two years under Biden.
But when accounting for inflation, real average weekly earnings plummeted from December 2021 to last month by 3.1%, according to the Labor Department.
Over the entirety of Biden's presidency, wages have cumulatively risen by 10% while inflation has risen cumulatively by 14%.
Experts, including Rachel Greszler, a senior research fellow at the Heritage Foundation, calculate that this mismatch has cost the average household thousands of dollars.
"The Biden administration continues to tout high job gains throughout its tenure but fails to mention the large decline in workers' inflation-adjusted wages and the millions of Americans that are no longer working," Greszler wrote.
"Since January 2021, workers have lost $3,300 in wages due to inflation's $7,200 tax that has outstripped workers' $3,900 nominal wage gains."
As costs for necessities increase and households have less purchasing power, many Americans are forced to make tough choices.
Nearly one in five Americans (18%) said they skipped meals or didn't buy groceries due to high inflation over the past year, according to a Nationwide Retirement Institute survey.
The data also showed that, due to inflation, many people canceled or postponed health plans in the past 12 months to see a specialist (14%), take a prescribed medication (10%), or get an annual physical (11%).
Meanwhile, the data found 10% of adults have diverted funds from retirement savings to pay for health care expenses, and another 14% are considering doing so this year.
Among Gen Z and Millennials, this figure is 21% and 20%, respectively.
Still, Biden has touted the economy's performance, crediting his administration's policies for helping working and middle-class Americans.
"Now, two years in, it's clearer than ever that our plan is working."
"We're building the economy from the bottom up and the middle out."
"Not just the top down," Biden said at the Conference of Mayors Winter Meeting over the weekend.
"Because when we do that, by the way, the wealthy do very, very well."
"And everybody — the poor have a shot, and the middle class can have a little breathing room."
"An economy that benefits the folks in the Heartland as well as in our cities and all across America."
Biden has also recently said the economy is headed to a "new plateau" and on a "winning streak," despite fears of a looming recession.
White House press secretary Karine Jean-Pierre has echoed these points, telling reports last week that Biden's policies over the past two years led to a "historic recovery" following the COVID-19 pandemic and what Biden has termed "stable and steady" economic growth.
So too has Treasury Secretary Janet Yellin, who penned an op-ed for the Wall Street Journal last month making similar arguments.
"The policies of the Biden administration have propelled the American economy to one of the fastest recoveries in modern history," she wrote.
"Because of President Biden's plan, we have improved the economic well-being of American families and workers and strengthened the economy's resilience in the face of significant global headwinds."
The American people don't seem to be buying such arguments, however.
For several months, polling has consistently shown a majority of Americans disapprove of Biden's handling of inflation and the overall economy more broadly.
A new ABC News/Ipsos poll, for example, shows just 31% of the country approves of his handling of inflation and only 38% likes how he's tackled the economy.
Such disapproval fits with an overall pessimism about upward economic mobility found in recent polls.
Gallup, which tracks Americans' views of the next generation’s likelihood of surpassing their parents' living standards, found in a recent survey that hope for the American dream is at an all-time low.
According to the data, 59% of middle-income Americans — defined as making between $40,000 and $100,000 — said it's very or somewhat unlikely that today's young adults will have a better life than their parents.
Of those with annual household incomes under $40,000, 48% similarly said it's unlikely today's kids will have better lives than their parents.
Aaron Kliegman is a politics reporter for Fox News Digital.
https://www.foxnews.com/politics/biden- ... r-payments
"As Biden touts US economy, Americans struggling to make car payments - Severely delinquent car loans reach highest rate since financial crisis of 2009"
By Aaron Kliegman | Fox News
January 23, 2023
As President Biden touts the state of the U.S. economy under his stewardship, a striking number of Americans with auto loans are struggling to make their monthly payments.
The juxtaposition between Biden's rhetoric and the harsh economic realities for many people highlights what's become a constant thorn in the president's side: high inflation, which continues to eat away at household income, and public opinion disapproving of his handling of the economy.
Car loans are the latest sign of such economic problems.
Indeed, loans delinquent by more than two months increased by 5.3% in December compared to the prior month and skyrocketed by 26.7% from a year ago, according to recently released data from Cox Automotive.
Of all December loans, 1.84% were severely delinquent (generally defined as more than 90 days behind on payments), marking an increase from 1.74% in November and the highest rate since February 2009, when the financial crisis crippled the U.S. economy.
People with low credit scores and poor credit histories — those who received subprime auto loans — were especially behind on payments.
"In December, 7.11% of subprime loans were severely delinquent, increasing from 6.75% the prior month," Cox Automotive reported.
"The subprime severe delinquency rate was 163 basis points higher than a year ago, and the December rate was the highest in the data series back to 2006."
Despite more people missing loan payments, however, defaults on loans have yet to experience a similar surge.
Auto lenders generally don't consider the borrower to be in default until they're 90 to 120 days late of insufficient payments, indicating a potential surge in defaults in the coming months.
New figures showing people not making their car payments come as Americans are living paycheck to paycheck and not being able to afford basic necessities.
About 72% of middle-income families say their earnings are falling behind the cost of living, according to a quarterly survey from Primeric report.
A similar number, 74%, said they're unable to save for their future.
Both figures are up from a year ago.
Prices continue to remain high due to inflation, which reached a four-decade high last summer but has slowed over the last six months.
According to the latest data, consumer inflation in December increased by 6.5% compared to the same time a year ago — the smallest 12-month increase since October 2021.
Meanwhile, the inflation rate for producers in December rose 6.2% over the previous 12 months, the lowest level since March 2021.
"As inflation is coming down, take-home pay for workers is going up," Biden said in remarks on the economy earlier this month.
"Workers' wages are higher now than they were seven months ago, adjusted for inflation."
"Wages for lower-income and middle-income workers have gone up even more."
"It all adds up to a real break for consumers, real breathing room for families, and more proof that my economic plan is working."
However, while inflation is slowing, the most basic and fundamental costs of living — food and housing — have spiked.
Grocery prices are up 11.8% year-over-year, while shelter costs are up 7.5% from a year ago.
Despite Biden's comments, inflation has outpaced raw worker wages, which have consistently increased over the past two years under Biden.
But when accounting for inflation, real average weekly earnings plummeted from December 2021 to last month by 3.1%, according to the Labor Department.
Over the entirety of Biden's presidency, wages have cumulatively risen by 10% while inflation has risen cumulatively by 14%.
Experts, including Rachel Greszler, a senior research fellow at the Heritage Foundation, calculate that this mismatch has cost the average household thousands of dollars.
"The Biden administration continues to tout high job gains throughout its tenure but fails to mention the large decline in workers' inflation-adjusted wages and the millions of Americans that are no longer working," Greszler wrote.
"Since January 2021, workers have lost $3,300 in wages due to inflation's $7,200 tax that has outstripped workers' $3,900 nominal wage gains."
As costs for necessities increase and households have less purchasing power, many Americans are forced to make tough choices.
Nearly one in five Americans (18%) said they skipped meals or didn't buy groceries due to high inflation over the past year, according to a Nationwide Retirement Institute survey.
The data also showed that, due to inflation, many people canceled or postponed health plans in the past 12 months to see a specialist (14%), take a prescribed medication (10%), or get an annual physical (11%).
Meanwhile, the data found 10% of adults have diverted funds from retirement savings to pay for health care expenses, and another 14% are considering doing so this year.
Among Gen Z and Millennials, this figure is 21% and 20%, respectively.
Still, Biden has touted the economy's performance, crediting his administration's policies for helping working and middle-class Americans.
"Now, two years in, it's clearer than ever that our plan is working."
"We're building the economy from the bottom up and the middle out."
"Not just the top down," Biden said at the Conference of Mayors Winter Meeting over the weekend.
"Because when we do that, by the way, the wealthy do very, very well."
"And everybody — the poor have a shot, and the middle class can have a little breathing room."
"An economy that benefits the folks in the Heartland as well as in our cities and all across America."
Biden has also recently said the economy is headed to a "new plateau" and on a "winning streak," despite fears of a looming recession.
White House press secretary Karine Jean-Pierre has echoed these points, telling reports last week that Biden's policies over the past two years led to a "historic recovery" following the COVID-19 pandemic and what Biden has termed "stable and steady" economic growth.
So too has Treasury Secretary Janet Yellin, who penned an op-ed for the Wall Street Journal last month making similar arguments.
"The policies of the Biden administration have propelled the American economy to one of the fastest recoveries in modern history," she wrote.
"Because of President Biden's plan, we have improved the economic well-being of American families and workers and strengthened the economy's resilience in the face of significant global headwinds."
The American people don't seem to be buying such arguments, however.
For several months, polling has consistently shown a majority of Americans disapprove of Biden's handling of inflation and the overall economy more broadly.
A new ABC News/Ipsos poll, for example, shows just 31% of the country approves of his handling of inflation and only 38% likes how he's tackled the economy.
Such disapproval fits with an overall pessimism about upward economic mobility found in recent polls.
Gallup, which tracks Americans' views of the next generation’s likelihood of surpassing their parents' living standards, found in a recent survey that hope for the American dream is at an all-time low.
According to the data, 59% of middle-income Americans — defined as making between $40,000 and $100,000 — said it's very or somewhat unlikely that today's young adults will have a better life than their parents.
Of those with annual household incomes under $40,000, 48% similarly said it's unlikely today's kids will have better lives than their parents.
Aaron Kliegman is a politics reporter for Fox News Digital.
https://www.foxnews.com/politics/biden- ... r-payments
Re: THE ECONOMY
CNN
"Fact check: Biden makes false and misleading claims in economic speech"
Story by Daniel Dale
28 JANUARY 2023
President Joe Biden delivered a Thursday speech to hail economic progress during his administration and to attack congressional Republicans for their proposals on the economy and the social safety net.
Some of Biden’s claims in the speech were false, misleading or lacking critical context, though others were correct.
Here’s a breakdown of the 14 claims CNN fact-checked.
Infrastructure projects
Touting the bipartisan infrastructure law he signed in 2021, Biden said, “Last year, we funded 700,000 major construction projects – 700,000 all across America."
"From highways to airports to bridges to tunnels to broadband.”
Facts First:
Biden’s “700,000” figure is wildly inaccurate; it adds an extra two zeros to the correct figure Biden used in a speech last week and the White House has also used before: 7,000 projects.
The White House acknowledged his misstatement later on Thursday by correcting the official transcript to say 7,000 rather than 700,000.
A cap on seniors’ drug spending
Biden said, “Well, here’s the deal: I put a – we put a cap, and it’s now in effect – now in effect, as of January 1 – of $2,000 a year on prescription drug costs for seniors.”
Facts First:
Biden’s claims that this cap is now in effect and that it came into effect on January 1 are false.
The $2,000 annual cap contained in the Inflation Reduction Act that Biden signed last year – on Medicare Part D enrollees’ out-of-pocket spending on covered prescription drugs – takes effect in 2025.
The maximum may be higher than $2,000 in subsequent years, since it is tied to Medicare Part D’s per capita costs.
Asked for comment, a White House official noted that other Inflation Reduction Act health care provisions that will save Americans money did indeed come into effect on January 1, 2023.
- CNN’s Tami Luhby contributed to this item.
Vaccinations under Trump
Criticizing former President Donald Trump over his handling of the Covid-19 pandemic, Biden said, “Back then, only 3.5 million people had been – even had their first vaccination, because the other guy and the other team didn’t think it mattered a whole lot.”
Facts First:
Biden is free to criticize Trump’s vaccine rollout, but his “only 3.5 million” figure is misleading at best.
As of the day Trump left office in January 2021, about 19 million people had received a first shot of a Covid-19 vaccine, according to figures published by the Centers for Disease Control and Prevention.
The “3.5 million” figure Biden cited is, in reality, the number of people at the time who had received two shots to complete their primary vaccination series.
Someone could perhaps try to argue that completing a primary series is what Biden meant by “had their first vaccination” – but he used a different term, “fully vaccinated,” to refer to the roughly 230 million people in that very same group today.
His contrasting language made it sound like there are 230 million people with at least two shots today versus 3.5 million people with just one shot when he took office.
That isn’t true.
Billionaires and taxes
Biden said Republicans want to cut taxes for billionaires, “who pay virtually only 3% of their income now – 3%, they pay.”
Facts First:
Biden’s “3%” claim is incorrect.
For the second time in less than a week, Biden inaccurately described a 2021 finding from economists in his administration that the wealthiest 400 billionaire families paid an average of 8.2% of their income in federal individual income taxes between 2010 and 2018; after CNN inquired about Biden’s “3%” claim on Thursday, the White House published a corrected official transcript that uses “8%” instead.
Also, it’s important to note that even that 8% number is contested, since it is an alternative calculation that includes unrealized capital gains that are not treated as taxable income under federal law.
“Biden’s numbers are way too low,” said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute think tank, though Gleckman also said we don’t know precisely what tax rates billionaires do pay.
Gleckman wrote in an email: “In 2019, Berkeley economists Emmanuel Saez and Gabe Zucman estimated the top 400 households paid an average effective tax rate of about 23 percent in 2018."
"They got a lot of attention at the time because that rate was lower than the average rate of 24 percent for the bottom half of the income distribution."
"But it still was way more than 2 or 3, or even 8 percent.”
Biden has cited the 8% statistic in various other speeches, but unlike the administration economists who came up with it, he tends not to explain that it doesn’t describe tax rates in a conventional way.
And regardless, he said “3%” in this speech and “2%” in a speech last week.
The impact of a new corporate tax
Biden cited a 2021 report from the Institute on Taxation and Economic Policy think tank that found that 55 of the country’s largest corporations had made $40 billion in profit in their previous fiscal year but not paid any federal corporate income taxes.
Before touting the 15% alternative corporate minimum tax he signed into law in last year’s Inflation Reduction Act, Biden said, “The days are over when corporations are paying zero in federal taxes.”
Facts First:
Biden exaggerated.
The new minimum tax will reduce the number of companies that don’t pay any federal taxes, but it’s not true that the days of companies paying zero are “over.”
That’s because the minimum tax, on the “book income” companies report to investors, only applies to companies with at least $1 billion in average annual income.
According to the Institute on Taxation and Economic Policy, only 14 of the companies on its 2021 list of 55 non-payers reported having US pre-tax income of at least $1 billion.
In other words, there will clearly still be some large and profitable corporations paying no federal income tax even after the minimum tax takes effect this year.
The exact number is not yet known.
Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy, told CNN in the fall that the new tax is “an important step forward from the status quo” and that it will raise substantial revenue, but he also said: “I wouldn’t want to assert that the minimum tax will end the phenomenon of zero-tax profitable corporations."
"A more accurate phrasing would be to say that the minimum tax will *help* ensure that *the most profitable* corporations pay at least some federal income tax.”
There are lots of nuances to the tax; you can read more specifics here.
Asked for comment on Thursday, a White House official told CNN: “The Inflation Reduction Act ensures the wealthiest corporations pay a 15% minimum tax, precisely the corporations the President focused on during the campaign and in office."
"The President’s full Made in America tax plan would ensure all corporations pay a 15% minimum tax, and the President has called on Congress to pass that plan.”
Biden and the federal deficit
Noting the big increase in the federal debt under Trump, Biden said that his administration has taken a “different path” and boasted: “As a result, the last two years – my administration – we cut the deficit by $1.7 trillion, the largest reduction in debt in American history.”
Facts First:
Biden’s boast leaves out important context.
It is true that the federal deficit fell by a total of $1.7 trillion under Biden in the 2021 and 2022 fiscal years, including a record $1.4 trillion drop in 2022 – but it is highly questionable how much credit Biden deserves for this reduction.
Biden did not mention that the primary reason the deficit fell so substantially was that it had skyrocketed to a record high under Trump in 2020 because of bipartisan emergency pandemic relief spending, then fell as expected as the spending expired as planned.
Independent analysts say Biden’s own actions, including his laws and executive orders, have had the overall effect of adding to current and projected future deficits, not reducing those deficits.
Dan White, senior director of economic research at Moody’s Analytics – an economics firm whose assessments Biden has repeatedly cited during his presidency – told CNN’s Matt Egan in October: “On net, the policies of the administration have increased the deficit, not reduced it.”
The Committee for a Responsible Federal Budget, an advocacy group, wrote in September that Biden’s actions will add more than $4.8 trillion to deficits from 2021 through 2031, or $2.5 trillion if you don’t count the American Rescue Plan pandemic relief bill of 2021.
National Economic Council director Brian Deese wrote on the White House website last week that the American Rescue Plan pandemic relief bill “facilitated a strong economic recovery and enabled the responsible wind-down of emergency spending programs,” thereby reducing the deficit; David Kelly, chief global strategist at J.P. Morgan Funds, told Egan in October that the Biden administration does deserve credit for the recovery that has pushed the deficit downward.
And Deese correctly noted that Biden’s signature legislation, last year’s Inflation Reduction Act, is expected to bring down deficits by more than $200 billion over the next decade.
Still, the deficit-reducing impact of that one bill is expected to be swamped by the deficit-increasing impact of various additional bills and policies Biden has approved.
Wage growth
Biden said, “Wages are up, and they’re growing faster than inflation."
"Over the past six months, inflation has gone down every month and, God willing, will continue to do that.”
Facts First:
Biden’s claim that wages are up and growing faster than inflation is true if you start the calculation seven months ago; “real” wages, which take inflation into account, started rising in mid-2022 as inflation slowed.
(Biden is right that inflation has declined, on an annual basis, every month for the last six months.)
However, real wages are lower today than they were both a full year ago and at the beginning of Biden’s presidency in January 2021.
That’s because inflation was so high in 2021 and the beginning of 2022.
There are various ways to measure real wages.
Real average hourly earnings declined 1.7% between December 2021 and December 2022, while real average weekly earnings (which factors in the number of hours people worked) declined 3.1% over that period.
House Republicans and the deficit
Biden said he was disappointed that the first bill passed by the new Republican majority in the House of Representatives “added $114 billion to the deficit.”
Facts First:
Biden is correct about how the bill would affect the deficit if it became law.
He accurately cited an estimate from the government’s nonpartisan Congressional Budget Office.
The bill would eliminate more than $71 billion of the $80 billion in additional funding for the Internal Revenue Service (IRS) that Biden signed into law in the Inflation Reduction Act.
The Congressional Budget Office found that taking away this funding – some of which the Biden administration said will go toward increased audits of high-income individuals and large corporations – would result in a loss of nearly $186 billion in government revenue between 2023 and 2032, for a net increase to the deficit of about $114 billion.
The Republican bill has no chance of becoming law under Biden, who has vowed to veto it in the highly unlikely event it got through the Democratic-controlled Senate.
House Republicans and taxes
Biden said that “MAGA Republicans” in the House “want to impose a 30 percent national sales tax on everything from food, clothing, school supplies, housing, cars – a whole deal.”
He said they want to do that because “they want to eliminate the income tax system.”
Facts First:
This is a fair description of the Republicans’ “FairTax” bill.
The bill would eliminate federal income taxes, plus the payroll tax, capital gains tax and estate tax, and replace it with a national sales tax.
The bill describes a rate of 23% on the “gross payments” on a product or service, but when the tax rate is described in the way consumers are used to sales taxes being described, it’s actually right around 30%, as a pro-FairTax website acknowledges.
It is not clear how much support the bill currently has among the House Republican caucus.
Notably, House Speaker Kevin McCarthy told CNN’s Manu Raju this week that he opposes the bill – though, while seeking right-wing votes for his bid for speaker in early January, he promised its supporters that it would be considered in committee.
Biden wryly said in his speech, “The Republican speaker says he’s not so sure he’s for it.”
The unemployment rate
Biden claimed the unemployment rate “is the lowest it’s been in 50 years.”
Facts First:
This is true.
The unemployment rate was just below 3.5% in December, the lowest figure since 1969.
The headline monthly rate, which is rounded to a single decimal place, was reported as 3.5% in December and also reported as 3.5% in three months of President Donald Trump’s tenure, in late 2019 and in early 2020.
But if you look at more precise figures, December was indeed the lowest since 1969 – 3.47% – just below the figures for February 2020, January 2020 and September 2019.
Unemployment among demographic groups
Biden said that the unemployment rates for Black and Hispanic Americans are “near record lows” and that the unemployment rate for people with disabilities is “the lowest ever recorded” and the “lowest ever in history.”
Facts First:
Biden’s claims are accurate, though it’s worth noting that the unemployment rate for people with disabilities has only been released by the government since 2008.
The Black or African American unemployment rate was 5.7% in December, not far from the record low of 5.3% that was set in August 2019.
(This data series goes back to 1972.)
The rate was 9.2% in January 2021, the month Biden became president.
The Hispanic or Latino unemployment rate was 4.1% in December, just above the record low of 4.0% that was set in September 2019.
(This data series goes back to 1973.)
The rate was 8.5% in January 2021.
The unemployment rate for people with disabilities was 5.0% in December, the lowest since the beginning of the data series in 2008.
The rate was 12.0% in January 2021.
Foreclosures
Biden said that fewer families are facing foreclosure than before the pandemic.
Facts First:
Biden is correct.
According to a report published by the Federal Reserve Bank of New York, about 28,500 people had new foreclosure notations on their credit reports in the third quarter of 2022, the most recent quarter for which data is available; that was down from about 71,420 people with new foreclosure notations in the fourth quarter of 2019 and 74,860 people in the first quarter of 2020.
Foreclosures plummeted in the second quarter of 2020 because of government moratoriums put in place because of the Covid-19 pandemic.
Foreclosures spiked in 2022, relative to 2020-2021 levels, after the expiry of these moratoriums, but they remained very low by historical standards.
Health insurance coverage
Biden said, “More American families have health insurance today than any time in American history.”
Facts First:
Biden’s claim is accurate.
An analysis provided to CNN by the Kaiser Family Foundation, which studies US health care, found that about 295 million US residents had health insurance in 2021, the highest on record – and Jennifer Tolbert, the foundation’s director for state health reform, told CNN this week that “I expect the number of people with insurance continued to increase in 2022.”
Tolbert noted that the number of insured residents generally rises over time because of population growth, but she added that “it is not a given” that there will be an increase in the number of insured residents every year – the number declined slightly under Trump from 2018 to 2019, for example – and that “policy changes as well as economic factors also affect these numbers.”
As CNN’s Tami Luhby has reported, sign-ups on the federal insurance exchange created by the Affordable Care Act, also known as Obamacare, have spiked nearly 50% under Biden.
Biden’s 2021 American Rescue Plan pandemic relief law and then the 2022 Inflation Reduction Act temporarily boosted federal premium subsidies for exchange enrollees, and the Biden administration has also taken various other steps to get people to sign up on the exchanges.
In addition, enrollment in Medicaid health insurance has increased significantly during the Covid-19 pandemic, in part because of a bipartisan 2020 law that temporarily prevented people from being disenrolled from the program.
The percentage of residents without health insurance fell to an all-time low of 8.0% in the first quarter of 2022, according to an analysis published last summer by the federal government’s Department of Health and Human Services.
That meant there were 26.4 million people without health insurance, down from 48.3 million in 2010, the year Obamacare was signed into law.
Business applications
Biden said, “And over the last two years, more than 10 million people have applied to start a small business."
"That’s more than any two years in all of recorded American history.”
Facts First:
This is true.
There were about 5.4 million business applications in 2021, the highest since 2005 (the first year for which the federal government released this data for a full year), and about 5.1 million business applications in 2022.
Not every application turns into a real business, but the number of “high-propensity” business applications – those deemed to have a high likelihood of turning into a business with a payroll – also hit a record in 2021 and saw its second-highest total in 2022.
Trump’s last full year in office, 2020, also set a then-record for total and high-propensity applications.
There are various reasons for the pandemic-era boom in entrepreneurship, which began after millions of Americans lost their jobs in early 2020.
Among them: some newly unemployed workers seized the moment to start their own enterprises; Americans had extra money from stimulus bills signed by Trump and Biden; interest rates were particularly low until a series of rate hikes that began in the spring of 2022.
https://www.msn.com/en-us/news/politics ... 9b071eaf07
"Fact check: Biden makes false and misleading claims in economic speech"
Story by Daniel Dale
28 JANUARY 2023
President Joe Biden delivered a Thursday speech to hail economic progress during his administration and to attack congressional Republicans for their proposals on the economy and the social safety net.
Some of Biden’s claims in the speech were false, misleading or lacking critical context, though others were correct.
Here’s a breakdown of the 14 claims CNN fact-checked.
Infrastructure projects
Touting the bipartisan infrastructure law he signed in 2021, Biden said, “Last year, we funded 700,000 major construction projects – 700,000 all across America."
"From highways to airports to bridges to tunnels to broadband.”
Facts First:
Biden’s “700,000” figure is wildly inaccurate; it adds an extra two zeros to the correct figure Biden used in a speech last week and the White House has also used before: 7,000 projects.
The White House acknowledged his misstatement later on Thursday by correcting the official transcript to say 7,000 rather than 700,000.
A cap on seniors’ drug spending
Biden said, “Well, here’s the deal: I put a – we put a cap, and it’s now in effect – now in effect, as of January 1 – of $2,000 a year on prescription drug costs for seniors.”
Facts First:
Biden’s claims that this cap is now in effect and that it came into effect on January 1 are false.
The $2,000 annual cap contained in the Inflation Reduction Act that Biden signed last year – on Medicare Part D enrollees’ out-of-pocket spending on covered prescription drugs – takes effect in 2025.
The maximum may be higher than $2,000 in subsequent years, since it is tied to Medicare Part D’s per capita costs.
Asked for comment, a White House official noted that other Inflation Reduction Act health care provisions that will save Americans money did indeed come into effect on January 1, 2023.
- CNN’s Tami Luhby contributed to this item.
Vaccinations under Trump
Criticizing former President Donald Trump over his handling of the Covid-19 pandemic, Biden said, “Back then, only 3.5 million people had been – even had their first vaccination, because the other guy and the other team didn’t think it mattered a whole lot.”
Facts First:
Biden is free to criticize Trump’s vaccine rollout, but his “only 3.5 million” figure is misleading at best.
As of the day Trump left office in January 2021, about 19 million people had received a first shot of a Covid-19 vaccine, according to figures published by the Centers for Disease Control and Prevention.
The “3.5 million” figure Biden cited is, in reality, the number of people at the time who had received two shots to complete their primary vaccination series.
Someone could perhaps try to argue that completing a primary series is what Biden meant by “had their first vaccination” – but he used a different term, “fully vaccinated,” to refer to the roughly 230 million people in that very same group today.
His contrasting language made it sound like there are 230 million people with at least two shots today versus 3.5 million people with just one shot when he took office.
That isn’t true.
Billionaires and taxes
Biden said Republicans want to cut taxes for billionaires, “who pay virtually only 3% of their income now – 3%, they pay.”
Facts First:
Biden’s “3%” claim is incorrect.
For the second time in less than a week, Biden inaccurately described a 2021 finding from economists in his administration that the wealthiest 400 billionaire families paid an average of 8.2% of their income in federal individual income taxes between 2010 and 2018; after CNN inquired about Biden’s “3%” claim on Thursday, the White House published a corrected official transcript that uses “8%” instead.
Also, it’s important to note that even that 8% number is contested, since it is an alternative calculation that includes unrealized capital gains that are not treated as taxable income under federal law.
“Biden’s numbers are way too low,” said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute think tank, though Gleckman also said we don’t know precisely what tax rates billionaires do pay.
Gleckman wrote in an email: “In 2019, Berkeley economists Emmanuel Saez and Gabe Zucman estimated the top 400 households paid an average effective tax rate of about 23 percent in 2018."
"They got a lot of attention at the time because that rate was lower than the average rate of 24 percent for the bottom half of the income distribution."
"But it still was way more than 2 or 3, or even 8 percent.”
Biden has cited the 8% statistic in various other speeches, but unlike the administration economists who came up with it, he tends not to explain that it doesn’t describe tax rates in a conventional way.
And regardless, he said “3%” in this speech and “2%” in a speech last week.
The impact of a new corporate tax
Biden cited a 2021 report from the Institute on Taxation and Economic Policy think tank that found that 55 of the country’s largest corporations had made $40 billion in profit in their previous fiscal year but not paid any federal corporate income taxes.
Before touting the 15% alternative corporate minimum tax he signed into law in last year’s Inflation Reduction Act, Biden said, “The days are over when corporations are paying zero in federal taxes.”
Facts First:
Biden exaggerated.
The new minimum tax will reduce the number of companies that don’t pay any federal taxes, but it’s not true that the days of companies paying zero are “over.”
That’s because the minimum tax, on the “book income” companies report to investors, only applies to companies with at least $1 billion in average annual income.
According to the Institute on Taxation and Economic Policy, only 14 of the companies on its 2021 list of 55 non-payers reported having US pre-tax income of at least $1 billion.
In other words, there will clearly still be some large and profitable corporations paying no federal income tax even after the minimum tax takes effect this year.
The exact number is not yet known.
Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy, told CNN in the fall that the new tax is “an important step forward from the status quo” and that it will raise substantial revenue, but he also said: “I wouldn’t want to assert that the minimum tax will end the phenomenon of zero-tax profitable corporations."
"A more accurate phrasing would be to say that the minimum tax will *help* ensure that *the most profitable* corporations pay at least some federal income tax.”
There are lots of nuances to the tax; you can read more specifics here.
Asked for comment on Thursday, a White House official told CNN: “The Inflation Reduction Act ensures the wealthiest corporations pay a 15% minimum tax, precisely the corporations the President focused on during the campaign and in office."
"The President’s full Made in America tax plan would ensure all corporations pay a 15% minimum tax, and the President has called on Congress to pass that plan.”
Biden and the federal deficit
Noting the big increase in the federal debt under Trump, Biden said that his administration has taken a “different path” and boasted: “As a result, the last two years – my administration – we cut the deficit by $1.7 trillion, the largest reduction in debt in American history.”
Facts First:
Biden’s boast leaves out important context.
It is true that the federal deficit fell by a total of $1.7 trillion under Biden in the 2021 and 2022 fiscal years, including a record $1.4 trillion drop in 2022 – but it is highly questionable how much credit Biden deserves for this reduction.
Biden did not mention that the primary reason the deficit fell so substantially was that it had skyrocketed to a record high under Trump in 2020 because of bipartisan emergency pandemic relief spending, then fell as expected as the spending expired as planned.
Independent analysts say Biden’s own actions, including his laws and executive orders, have had the overall effect of adding to current and projected future deficits, not reducing those deficits.
Dan White, senior director of economic research at Moody’s Analytics – an economics firm whose assessments Biden has repeatedly cited during his presidency – told CNN’s Matt Egan in October: “On net, the policies of the administration have increased the deficit, not reduced it.”
The Committee for a Responsible Federal Budget, an advocacy group, wrote in September that Biden’s actions will add more than $4.8 trillion to deficits from 2021 through 2031, or $2.5 trillion if you don’t count the American Rescue Plan pandemic relief bill of 2021.
National Economic Council director Brian Deese wrote on the White House website last week that the American Rescue Plan pandemic relief bill “facilitated a strong economic recovery and enabled the responsible wind-down of emergency spending programs,” thereby reducing the deficit; David Kelly, chief global strategist at J.P. Morgan Funds, told Egan in October that the Biden administration does deserve credit for the recovery that has pushed the deficit downward.
And Deese correctly noted that Biden’s signature legislation, last year’s Inflation Reduction Act, is expected to bring down deficits by more than $200 billion over the next decade.
Still, the deficit-reducing impact of that one bill is expected to be swamped by the deficit-increasing impact of various additional bills and policies Biden has approved.
Wage growth
Biden said, “Wages are up, and they’re growing faster than inflation."
"Over the past six months, inflation has gone down every month and, God willing, will continue to do that.”
Facts First:
Biden’s claim that wages are up and growing faster than inflation is true if you start the calculation seven months ago; “real” wages, which take inflation into account, started rising in mid-2022 as inflation slowed.
(Biden is right that inflation has declined, on an annual basis, every month for the last six months.)
However, real wages are lower today than they were both a full year ago and at the beginning of Biden’s presidency in January 2021.
That’s because inflation was so high in 2021 and the beginning of 2022.
There are various ways to measure real wages.
Real average hourly earnings declined 1.7% between December 2021 and December 2022, while real average weekly earnings (which factors in the number of hours people worked) declined 3.1% over that period.
House Republicans and the deficit
Biden said he was disappointed that the first bill passed by the new Republican majority in the House of Representatives “added $114 billion to the deficit.”
Facts First:
Biden is correct about how the bill would affect the deficit if it became law.
He accurately cited an estimate from the government’s nonpartisan Congressional Budget Office.
The bill would eliminate more than $71 billion of the $80 billion in additional funding for the Internal Revenue Service (IRS) that Biden signed into law in the Inflation Reduction Act.
The Congressional Budget Office found that taking away this funding – some of which the Biden administration said will go toward increased audits of high-income individuals and large corporations – would result in a loss of nearly $186 billion in government revenue between 2023 and 2032, for a net increase to the deficit of about $114 billion.
The Republican bill has no chance of becoming law under Biden, who has vowed to veto it in the highly unlikely event it got through the Democratic-controlled Senate.
House Republicans and taxes
Biden said that “MAGA Republicans” in the House “want to impose a 30 percent national sales tax on everything from food, clothing, school supplies, housing, cars – a whole deal.”
He said they want to do that because “they want to eliminate the income tax system.”
Facts First:
This is a fair description of the Republicans’ “FairTax” bill.
The bill would eliminate federal income taxes, plus the payroll tax, capital gains tax and estate tax, and replace it with a national sales tax.
The bill describes a rate of 23% on the “gross payments” on a product or service, but when the tax rate is described in the way consumers are used to sales taxes being described, it’s actually right around 30%, as a pro-FairTax website acknowledges.
It is not clear how much support the bill currently has among the House Republican caucus.
Notably, House Speaker Kevin McCarthy told CNN’s Manu Raju this week that he opposes the bill – though, while seeking right-wing votes for his bid for speaker in early January, he promised its supporters that it would be considered in committee.
Biden wryly said in his speech, “The Republican speaker says he’s not so sure he’s for it.”
The unemployment rate
Biden claimed the unemployment rate “is the lowest it’s been in 50 years.”
Facts First:
This is true.
The unemployment rate was just below 3.5% in December, the lowest figure since 1969.
The headline monthly rate, which is rounded to a single decimal place, was reported as 3.5% in December and also reported as 3.5% in three months of President Donald Trump’s tenure, in late 2019 and in early 2020.
But if you look at more precise figures, December was indeed the lowest since 1969 – 3.47% – just below the figures for February 2020, January 2020 and September 2019.
Unemployment among demographic groups
Biden said that the unemployment rates for Black and Hispanic Americans are “near record lows” and that the unemployment rate for people with disabilities is “the lowest ever recorded” and the “lowest ever in history.”
Facts First:
Biden’s claims are accurate, though it’s worth noting that the unemployment rate for people with disabilities has only been released by the government since 2008.
The Black or African American unemployment rate was 5.7% in December, not far from the record low of 5.3% that was set in August 2019.
(This data series goes back to 1972.)
The rate was 9.2% in January 2021, the month Biden became president.
The Hispanic or Latino unemployment rate was 4.1% in December, just above the record low of 4.0% that was set in September 2019.
(This data series goes back to 1973.)
The rate was 8.5% in January 2021.
The unemployment rate for people with disabilities was 5.0% in December, the lowest since the beginning of the data series in 2008.
The rate was 12.0% in January 2021.
Foreclosures
Biden said that fewer families are facing foreclosure than before the pandemic.
Facts First:
Biden is correct.
According to a report published by the Federal Reserve Bank of New York, about 28,500 people had new foreclosure notations on their credit reports in the third quarter of 2022, the most recent quarter for which data is available; that was down from about 71,420 people with new foreclosure notations in the fourth quarter of 2019 and 74,860 people in the first quarter of 2020.
Foreclosures plummeted in the second quarter of 2020 because of government moratoriums put in place because of the Covid-19 pandemic.
Foreclosures spiked in 2022, relative to 2020-2021 levels, after the expiry of these moratoriums, but they remained very low by historical standards.
Health insurance coverage
Biden said, “More American families have health insurance today than any time in American history.”
Facts First:
Biden’s claim is accurate.
An analysis provided to CNN by the Kaiser Family Foundation, which studies US health care, found that about 295 million US residents had health insurance in 2021, the highest on record – and Jennifer Tolbert, the foundation’s director for state health reform, told CNN this week that “I expect the number of people with insurance continued to increase in 2022.”
Tolbert noted that the number of insured residents generally rises over time because of population growth, but she added that “it is not a given” that there will be an increase in the number of insured residents every year – the number declined slightly under Trump from 2018 to 2019, for example – and that “policy changes as well as economic factors also affect these numbers.”
As CNN’s Tami Luhby has reported, sign-ups on the federal insurance exchange created by the Affordable Care Act, also known as Obamacare, have spiked nearly 50% under Biden.
Biden’s 2021 American Rescue Plan pandemic relief law and then the 2022 Inflation Reduction Act temporarily boosted federal premium subsidies for exchange enrollees, and the Biden administration has also taken various other steps to get people to sign up on the exchanges.
In addition, enrollment in Medicaid health insurance has increased significantly during the Covid-19 pandemic, in part because of a bipartisan 2020 law that temporarily prevented people from being disenrolled from the program.
The percentage of residents without health insurance fell to an all-time low of 8.0% in the first quarter of 2022, according to an analysis published last summer by the federal government’s Department of Health and Human Services.
That meant there were 26.4 million people without health insurance, down from 48.3 million in 2010, the year Obamacare was signed into law.
Business applications
Biden said, “And over the last two years, more than 10 million people have applied to start a small business."
"That’s more than any two years in all of recorded American history.”
Facts First:
This is true.
There were about 5.4 million business applications in 2021, the highest since 2005 (the first year for which the federal government released this data for a full year), and about 5.1 million business applications in 2022.
Not every application turns into a real business, but the number of “high-propensity” business applications – those deemed to have a high likelihood of turning into a business with a payroll – also hit a record in 2021 and saw its second-highest total in 2022.
Trump’s last full year in office, 2020, also set a then-record for total and high-propensity applications.
There are various reasons for the pandemic-era boom in entrepreneurship, which began after millions of Americans lost their jobs in early 2020.
Among them: some newly unemployed workers seized the moment to start their own enterprises; Americans had extra money from stimulus bills signed by Trump and Biden; interest rates were particularly low until a series of rate hikes that began in the spring of 2022.
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