Economy Briefing: Fed’s Favorite Inflation Index Remains High
Annual inflation is climbing at the fastest pace in three decades in the United States, according to data released Friday, keeping pressure on the Federal Reserve and White House as they try to calibrate policy during a tumultuous period marked by strong consumer demand and quickly rising prices for couches, cars and housing.
Prices climbed by 4.4 percent in the year through September, according to the Personal Consumption Expenditures price index, which is the central bank’s preferred inflation gauge. That beats out recent months to become the fastest pace of increase since 1991.
From August to September, prices climbed 0.3 percent, in line with what economists expected and slower than rapid numbers posted earlier in the summer. Policymakers may take that as a sign that inflation was moderating, if still rapid on an annual basis, coming into the fall.
The figures came as separate data showed wages and benefits picking up for working Americans, and especially employees in service occupations, in the three months through September. Surging pay is good news for workers, but it could worry economic policymakers as a sign that price gains will continue as employers try to cover their rising labor costs.
Jerome H. Powell, the Fed chair, has increasingly acknowledged that inflation is lasting longer than central bankers had expected. Fed officials believe inflation will fade as supply chain snarls unravel and consumer demand for goods cools, but it remains unclear when that will happen. Janet L. Yellen, the Treasury secretary, has predicted that rapid price jumps will cool by later next year.
Still, the current pace of inflation has become an uncomfortable political problem for President Biden and has created a delicate balancing act for the Fed, which is still trying to get the labor market back to full strength.
The data released on Friday confirms what more timely inflation measures like the Consumer Price Index have already shown: Price gains are unusually brisk in the United States. That is happening in large part because supply chains are struggling to keep up with strong demand, thanks to virus-tied factory shutdowns, clogged ports and a shortage of transit workers, among other factors. The combination has made it hard to buy a kitchen table or a used car, and has caused the prices of many goods to jump sharply.
Personal spending continued at a solid pace in September, data released on Friday showed, climbing 0.6 percent from August — slower than the prior month, but in line with what economists had expected.
Consumption continued even as a measure of incomes that includes benefit payments dropped in September, a decline that came primarily because the government gave households less money. Personal income decreased 1 percent last month as pandemic unemployment insurance expansions expired and other pandemic relief programs wrapped up or paid out less.
But even as government help is waning, labor income is picking up. New data showed that Americans are earning more on the job: A measure of employment costs that traces wages and benefits climbed by 1.3 percent in the third quarter, more than the 0.9 percent economists had expected and the fastest pace in data since the series started in 1996.
On an annual basis, the Employment Cost Index climbed 3.7 percent, the fastest pace since 2004. Wage gains are especially rapid in service industries, which have been struggling to lure back workers as they reopen from pandemic lockdowns.
The Fed is closely watching measures of both wages and inflation expectations, which have risen in recent weeks, as it tries to assess whether price gains might spiral out of control.
“The risk is that ongoing high inflation will begin to lead price- and wage-setters to expect unduly high rates of inflation in the future,” Mr. Powell said last week. And if inflation seemed likely to stay high, “we would certainly use our tools to preserve price stability, while also taking into account the implications of our maximum employment goal.”
As prices climb, the Fed is preparing to slow down the large-scale bond purchases it had been using to lower long-term borrowing costs and support the economy. The central bank has been buying $120 billion in Treasury and mortgage-backed securities, but it is poised to announce its plan to slow that program as soon as next week. Mr. Powell has said buying could stop altogether by mid-2022.
That would leave the Fed in a position to raise its policy interest rate, its more traditional and arguably more powerful tool, should it need to do so to tamp down price increases. That rate has been set near zero since March 2020.
When the Fed raises interest rates, it makes it more expensive to borrow to buy houses, cars and washing machines. As demand cools, supply catches up and price gains moderate or even reverse, reducing inflation.
But the downside is that slower consumption and economic growth also lead to less business expansion and hiring. Slowing the job market is an unattractive prospect at a moment when millions of people remain out of work following lockdowns early in the pandemic and with concerns lingering about health and child care.
The Biden administration is trying to make sure that concerns about prices do not undermine its economic agenda. Ms. Yellen said over the weekend that she expects inflation to ease by the middle of 2022.
“Americans have not seen inflation like we have experienced recently in a long time,” Ms. Yellen acknowledged on CNN’s “State of the Union” on Oct. 24. “As we get back to normal, expect that to end.”
The eurozone economy continued its expansion through the summer as the region recovered from a double-dip recession, data published on Friday showed. But that recovery is being hampered by supply chain bottlenecks and labor shortages that are pushing up prices. In October, the annual inflation rate jumped to 4.1 percent, a separate report showed.
That matches the highest ever rate of inflation in the eurozone, last reached in mid-2008, according to data from the European statistics agency.
The previous month, inflation rose 3.4 percent from a year earlier. A surge in natural gas prices, caused by several factors including low stockpiles, disappointing supply from Russia and demand from China, is one of the key drivers of inflation. Energy prices rose nearly 24 percent in October from a year earlier.
Gross domestic product in the eurozone increased 2.2 percent in the third quarter, a slightly faster pace of growth than in the previous quarter of 2.1 percent, the region’s statistics agency also said on Friday.
The economy is rebounding from a recession at the end of 2020 and in the first quarter of this year, when a second wave of the coronavirus pandemic led to tight social restrictions across the region. As businesses have reopened and consumers have returned to restaurants and travel, economic output is expected to exceed its prepandemic level by the end of the year, according to the European Central Bank.
“From here on, do expect moderation,” Bert Colijn, an economist at ING Bank, wrote in a note to clients. “The first rebound effects are waning, which will lead to naturally slower G.D.P. growth. Besides that, input shortages and supply chain problems are adding to manufacturing woes.”
Christine Lagarde, the president of the European Central Bank, also said on Thursday that she expected the economic momentum to slow down, and the bank decided to keep its loose monetary stance unchanged. She added that high inflation and supply chain bottlenecks would last longer than initially expected but officials were confident they would ease over the course of next year.
“We did a lot of soul searching to test out analysis,” Ms. Lagarde said on Thursday about the central bank’s study of inflation. And she is confident the factors driving prices higher, including a mismatch in supply and demand, are temporary and that inflation will ease over the course of next year. “Granted, it will take a little longer than what we had expected,” she added.
Exxon Mobil and Chevron, the two dominant American oil companies, reported a third consecutive quarterly profit on Friday as petroleum and natural gas prices continued to climb higher.
In the third quarter, the American benchmark oil price remained near a seven-year high, ending the period at $76 a barrel. Since then it has risen an additional $6 a barrel, suggesting that the final quarter could be even more profitable for the oil companies.
While the Delta variant threatened the economic revival in the summer, so far this fall natural gas prices have also climbed around the world.
Exxon said it made $6.8 billion in the three months that ended in September on revenue of $73.8 billion. The profit compared with $4.7 billion in the second quarter on revenue of $67.8 billion. Throughout most of 2020, Exxon and other oil companies lost money as commodity prices collapsed under the pressure of the coronavirus pandemic, which halted air travel and commuting.
Darren Woods, Exxon’s chief executive, said the company’s financial performance had significantly improved, reflecting strong operations and cost control, as well as increased demand.
Mr. Woods said the returns on the company’s core businesses — production, refining and chemical — would allow the Texas-based company to advance lower-carbon investments.
Chevron reported a $6.1 billion profit for the second quarter on revenue of $43 billion. The company made $3.1 billion in the second quarter on revenue of $37.6 billion.
“Third-quarter earnings were the highest since first quarter 2013 largely due to improved market conditions, strong operational performance and a lower cost structure,” said Mike Wirth, Chevron’s chief executive.
Exxon, Chevron and other major oil companies have shifted their emphasis from expanding exploration to a more disciplined, cautious approach to break the pattern in which higher prices led to increased production, which in turn led to a return to lower prices. Instead, the companies are using their cash to repurchase shares and reduce debt.
Chevron said its capital spending so far this year was 22 percent lower than a year ago. The company, which is based in San Ramon, Calif., reduced its debt by $5.6 billion and repurchased $625 million in shares during the quarter.
Journalists at Politico, the inside-the-Beltway news outlet that was sold in August to the German publisher Axel Springer for more than $1 billion, announced Friday that they were moving to form a union and seeking voluntary recognition from their new owner.
The new unit, called the PEN Guild and affiliated with the NewsGuild, a union that represents journalists at other news outlets (including The New York Times), said it would represent more than 250 journalists at Politico and E&E News, a site covering energy and the environment that Politico acquired last year.
The unit said it had submitted to the National Labor Relations Board cards signed by more than 80 percent of eligible staff.
“The PEN Guild seeks equitable pay, a diverse and inclusive workplace and job protections for everyone — which we believe will make the newsrooms of Politico and E&E places where we are able to do our best work possible,” it said.
Politico did not immediately comment.
Politico was founded in 2007 by Robert Allbritton, whose family had owned a television company and the controlling stake of a local bank, and made a name for itself with a scoop-driven, insider style. In later years, Politico developed a lucrative suite of subscriber-only sites for specialized news, Politico Pro.
In an August interview with The New York Times, Mr. Allbritton, who remains Politico’s publisher, argued that unionizing did not make sense in an industry dominated by information work.
Axel Springer, a German publishing giant whose largest shareholder is KKR, the private equity giant, agreed to purchase Politico, Politico Europe and the Politico-owned tech news site Protocol this summer as part of its expansion into the United States. In 2015, it purchased Business Insider, now known as Insider, for $500 million and turned it into a subscription-based outlet. (Insider journalists formed a union earlier this year.)
Last year, Axel Springer acquired a controlling stake in the newsletter publisher Morning Brew. It also has sought to acquire Axios, the newsletter-based outlet founded in 2016 by three Politico veterans.
Earlier this month, Axel Springer removed Bild’s top editor, Julian Reichelt, after a report in The Times about a Bild trainee who had testified that Mr. Reichelt had asked her to a hotel for sex and to keep a payment under wraps. A previous internal investigation found that Mr. Reichelt had mixed his personal and professional lives but not broken any laws or committed sexual harassment or coercion.
Starbucks employees in upstate New York seeking to unionize notched a victory in their effort on Thursday, a day after the company, which is facing a staffing shortage, said that it would raise wages for U.S. employees.
Workers at three Buffalo-area stores will vote on whether to form a union in a mail-in election ending Dec. 8, an official with the National Labor Relations Board ruled Thursday.
In a win for the union seeking to represent the employees, the three stores will vote in separate elections, meaning that workers need only a majority of votes cast at a single location to form a union. The company had argued that employees at all 20 Buffalo-area stores should vote in a single election.
The campaign represents the most serious union effort at Starbucks in years. None of Starbucks’s nearly 9,000 corporate-owned stores in the country are unionized, though many of the stores owned by companies that have a licensing agreement with Starbucks have unions, and a corporate-owned store in Canada recently unionized.
On Wednesday, the company outlined its new pay plan. All hourly employees will earn at least $15 an hour, and the company will raise its average pay to $17 an hour by the summer of 2022. Employees with two or more years of service could receive up to a 5 percent raise starting January 2022. Workers with five or more years of service time could receive up to a 10 percent raise. On Thursday, Starbucks reported record revenue for its fiscal fourth quarter.
In a statement, the workers seeking to unionize called the election ruling “a significant victory,” and they said the company’s challenge over the proper voting pool was “a delay tactic.”
The company has denied that it was seeking to delay the elections and argued that workers at all 20 stores should vote together because they can work at multiple locations and because upper-level managers oversee decisions across a range of stores. The labor board official, an acting regional director, rejected those arguments.
Starbucks can still appeal the ruling to the labor board in Washington, a move it did not rule out.
“Our storied success has come from our working directly together as partners, without a third party between us,” a Starbucks spokesman, Reggie Borges, said in a statement. “We just received the ruling, and we are evaluating our options.”
Since workers at the three stores filed for union elections in late August, Starbucks has sent a number of managers, more senior company officials and even a top corporate executive to Buffalo. Many workers say the presence of the company officials is intimidating, while the company says they are there to address operational issues.
If the union vote is successful, the workers would become part of Workers United, an affiliate of the giant Service Employees International Union.
Employers in the United States are struggling to fill some jobs, with workers still sidelined by the pandemic or rethinking their ambitions. A record 4.3 million people quit their jobs in August, the Labor Department reported recently. That was up from four million in July and is by far the most in the two decades the government has been keeping track.
“Obviously, like all other retailers, we are navigating a very complex and unprecedented environment, and yes, we have seen some staffing challenges in certain parts of the country,” John Culver, Starbucks group president for North America, said during a conference call on Thursday. Mr. Culver noted that the company had adjusted store hours to “redeploy staffing into other stores where we need it.”
Its wage plan “culminates in a total of approximately $1 billion in incremental investments in annual wages and benefits over the last two years,” Starbucks said in a statement on Wednesday.
Starbucks also said it was investing in training by redesigning its “Barista Basics” guide and adding training time for all roles. Workers aiming to unionize have pointed to inadequate attention to training and periods of understaffing or high turnover.
Amazon on Thursday posted its slowest sales growth in almost seven years as the pandemic-fueled surge in online shopping eased. The company’s profit shrank, driven in part by higher labor costs and more spending on new warehouses and other logistics infrastructure meant to speed delivery times, and Amazon told investors to expect sales growth and profit to continue contracting in current quarter, which includes the holiday shopping season.
Facebook changed its corporate name to Meta on Thursday. Facebook and its other apps, such as Instagram and WhatsApp, will remain but under the Meta umbrella. It will begin trading under the stock ticker MVRS on Dec. 1.
Apple said on Thursday that its sales jumped by 29 percent and profit surged 62 percent in the most recent quarter, as the world’s most valuable public company continued to rake in money despite supply chain shortages that have slowed its growth. Revenue growth slowed from 36 percent in the prior quarter. Tim Cook, Apple’s chief executive, told CNBC that the results were due to “larger than expected supply constraints” related to global computer chip shortages caused by the pandemic.
China Evergrande, the troubled property giant, made another debt payment ahead of a Friday deadline, averting default for the second time in two weeks, according to one of the company’s bondholders.
The company made an interest payment that had been due on Sept. 29, this person said, speaking on condition of anonymity to discuss the matter. Evergrande had a 30-day grace period on the bond payment; the extension was to end on Friday.
The company didn’t immediately respond to a request for comment on the payment.
The payment comes a week after the world’s most indebted property developer narrowly avoided defaulting on another bond. Evergrande made an $83.5 million interest payment to bondholders last Friday, according to Securities Times, an official newspaper. That payment likewise came just a day ahead of a default. The interest payment due this Friday totaled $45.2 million.
Weighed down by more than $300 billion of debt, Evergrande has been trying to sell off parts of its vast empire to raise enough cash to pay off creditors. Last week, one of those deals — largely seen as a last-ditch lifeline — fell through. Evergrande has warned in securities filings that “in view of the difficulties, challenges and uncertainties” it has faced in selling its assets, it could not guarantee it would “be able to meet its financial obligations.”
The company’s financial crisis is testing the resolve of Chinese officials who were once quick to step in to save struggling giants like Evergrande. They have pledged to clean up China Inc.’s mountain of debt and end the property sector’s binge-borrowing habits.
Yet if the authorities let Evergrande fail, they could hurt some of the estimated more than one million Chinese home buyers who have purchased apartments from the company and are waiting for them to be built. A collapse could also slam construction workers and subcontractors who are waiting to be paid.
Alexandra Stevenson contributed reporting.
Citigroup told employees on Thursday that it would require vaccination against Covid-19 as a condition of employment in the United States, making it the first major bank to issue such a mandate.
“It has become crystal clear that Covid-19 will not be going away anytime soon,” Sara Wechter, the company’s head of human resources, wrote in a LinkedIn post describing the new policy.
Ms. Wechter cited two catalysts for the decision. First, because the bank does business with the federal government, it has an obligation to comply with President Biden’s executive order requiring vaccination for people working on government contracts. And mandating vaccinations will also allow the bank to “ensure the health and safety of our colleagues as we return to the office,” she wrote.
Citi will consider requests for medical and religious exemptions and will “will do all we can to help our colleagues comply with this new requirement,” Ms. Wechter wrote.
A Citi spokeswoman declined to comment on the mandate’s details.
Other big banks, including Bank of America and Goldman Sachs, have made vaccination a requirement for employees entering their offices but have stopped short of saying they would fire those who refuse to be vaccinated.