Daily Business Briefing
Aug. 9, 2021, 1:41 p.m. ET
Aug. 9, 2021, 1:41 p.m. ET
Expectations for long-term inflation rose slightly in July, the Federal Reserve Bank of New York said on Monday, and consumers continued to foresee rapid price gains in the near term as the economy reopens from pandemic-related lockdowns.
The move in the Survey of Consumer Expectations’ longer-term price gauge was small, but it could prove meaningful at a time when central bank officials are closely watching such measures.
Economic policymakers want to make sure that long-term inflation expectations remain low and stable. If consumers come to expect good and services will cost more over time, they might become more willing to accept price jumps, which could itself lock in quicker inflation.
Long-term inflation expectations have been relatively stable this year even as price gains have taken off. That has been good new for Fed officials, because it supports the idea that today’s strong readings should fade with time, as the economy moves through an unusual reopening period.
The move in the New York Fed gauge is probably not enough to shift that narrative, but it will bear watching as the central bank keeps an eye on a range of price measures. The survey’s estimate of price gains over three years moved up to 3.7 percent from 3.6 percent, making for the highest reading since August 2013. Consumers’ expectations for prices over the next year, which has moved up sharply this year, held steady at an elevated level.
Central bankers will get a chance to see how consumer prices are shaping up when the Bureau of Labor Statistics on Wednesday releases July inflation data known as the Consumer Price Index. The Fed officially targets a different price gauge, but the C.P.I. comes out earlier and its data feeds into the Fed’s preferred measure, making it a key data point.
Economists in a Bloomberg survey expect the C.P.I. to pick up at a 0.5 percent pace compared with the prior month, slightly slower than the 0.9 percent pace the prior month but still a rapid pace of increase (by way of context, the average monthly increase over the past 20 years has been 0.2 percent). Prices are expected to have climbed by 5.3 percent over the prior year, down slightly from 5.4 percent in the year through June.
Much of the recent increase in inflation is tied to reopening-related quirks — like a snap back in airline ticket prices, or a shortage of computer chips that has pushed up used-car prices — and policymakers expect those situations to resolve themselves with time. But there are big questions about how quickly supply chain issues will fade, and Fed policymakers are closely monitoring to make sure that the faster price gains do not turn into a lasting trend.
“The longer this goes on, the harder it’s going to be for regular families, and small businesses and others to not adjust,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, said on a call with reporters Monday. He noted that watching business, family and household expectations is important “to make sure that the length of this more turbulent time is not shifting expectations.”
“I’m not seeing that right now,” he added.
In its latest move to undo Trump-era policies, the Education Department on Monday said states are free to police federal student loan servicers that run afoul of local consumer protection laws, reversing its previous legal stance.
“Effective collaboration among the states and federal government is the best way to ensure that student loan borrowers get the best possible service,” Education Secretary Miguel A. Cardona said in a statement announcing the change.
The federal government pays seven vendors to collect payments from nearly 43 million borrowers on $1.4 trillion in federal student loans. Government auditors and other watchdogs have repeatedly criticized the companies for shoddy practices and mistakes that they say have harmed struggling borrowers and raised the repayment costs for many people.
Multiple state attorneys general have sued federal loan servicers over their missteps. In 2018, Betsy DeVos, the education secretary under former President Donald J. Trump, sought to block those lawsuits by arguing that only the federal government had the authority to oversee and punish its federal loan servicers.
Several federal judges viewed that stance skeptically. In at least four cases, federal district or appellate courts ruled against the department and found that states retained some enforcement rights over servicers’ actions toward their state’s residents.
The Education Department cited those rulings in new guidance explaining its reversal and said that working collaboratively with the states instead of fighting against them “could produce a more robust system of supervision and enforcement to monitor and improve performance under this far-flung system.”
Maura Healey, the attorney general of Massachusetts, praised the new stance. Her office sued, and later settled with, the government’s largest loan servicer over errors that she said hobbled public service workers seeking to use a loan-forgiveness program. (That servicer, the Pennsylvania Higher Education Assistance Agency, known to most borrowers as FedLoan, plans to terminate its contract with the government at the end of this year.)
“States have long played an integral role in higher education oversight and have been on the front lines of protecting student borrowers from fraud and abuse,” Ms. Healey said. “My office looks forward to collaborating with the department to ensure servicer accountability and borrower rights.”
Employers once again posted a record number of job openings in June as they scrambled to meet surging demand. But hiring also picked up, a sign that businesses are beginning to find a way through the labor-market logjam.
There were 10.1 million jobs available at the end of June, the Labor Department said Monday. That was up from 9.5 million in May and marked a record high for the fourth consecutive month. (The government began collecting job openings data in late 2000.)
Employers have struggled to recruit workers to fill all those jobs. But they made progress in June: They hired 6.7 million people, up nearly 700,000 from May and the most since the initial flood of post-lockdown hiring last year.
Still, hiring remains challenging for many businesses, giving workers a rare moment of leverage. There were more job openings than unemployed workers in June, a benchmark that took years to reach after the last recession. (The count of unemployed workers does not include people who are not actively searching for work, a category that has swelled in the pandemic because of child care responsibilities and other factors.)
Nearly 3.9 million employees quit their jobs voluntarily in June, close to a record. That suggests that workers are shopping around for better opportunities.
Some industries are having a particularly difficult time finding and retaining workers. Employers in the leisure and hospitality sector, which have been struggling to staff back up after last year’s mass layoffs, posted 1.7 million jobs in June, a record. But they filled only 1.4 million jobs, little changed from April and May. And nearly 800,000 people quit jobs in the industry.
The data released Monday came from the Labor Department’s Job Openings and Labor Turnover Survey, which is distinct from the better-known monthly employment report. That report, released last week, showed that job growth further accelerated in July.
WASHINGTON — Treasury Secretary Janet L. Yellen reiterated her call for Congress to raise or suspend the nation’s borrowing cap on Monday, urging lawmakers to act on a bipartisan basis and warning that a default would cause “irreparable harm” to the economy.
In a letter to Congress, Ms. Yellen reminded lawmakers that raising the debt limit does not authorize or increase government spending. In fact, she said, it allows the Treasury Department to pay for expenditures that have already been enacted.
“Failure to meet those obligations would cause irreparable harm to the U.S. economy and the livelihoods of all Americans,” Ms. Yellen said.
Top Republicans, including Senator Mitch McConnell, the minority leader, have suggested that Democrats will have to lift the debt ceiling on their own using a budgetary procedure known as reconciliation.
Republicans and Democrats in the Senate are pressing ahead this week on the final stages of a bipartisan infrastructure bill. Separately, Democrats in the Senate are also moving forward with a $3.5 trillion budget measure that would allow them to enact huge federal investments to expand social and environmental programs.
Ms. Yellen’s letter to Congress was her third such warning in recent weeks. Last week, she told lawmakers that she was already beginning to employ extraordinary measures, such as curbing investments in government retirement programs, to delay a default.
Because of the various relief programs that are in place, it is more difficult for the Treasury Department to predict how long Ms. Yellen can use such tools. The Congressional Budget Office said last month that Treasury Department would likely run out of cash sometime in October or November.
Ms. Yellen, in her letter, noted that during the Trump administration, Congress lifted the debt ceiling on a bipartisan basis three times.
“Congress should do so again now by increasing or suspending the debt limit on a bipartisan basis,” Ms. Yellen said. “The vast majority of the debt subject to the debt limit was accrued prior to the Administration taking office.”
SEOUL — Lee Jae-yong, the de facto leader of the sprawling Samsung conglomerate who was imprisoned for bribery, will be released on parole on Friday, the Ministry of Justice of South Korea said on Monday.
The ministry’s parole committee met on Monday and decided to free Mr. Lee and 800 other prisoners ahead of the Aug. 15 National Liberation Day, which commemorates the end of Japanese colonial rule of Korea at the end of World War II. South Korea often paroles or pardons prisoners to mark major national holidays.
Mr. Lee, also known as Jay Y. Lee, was serving a two-and-a-half-year prison term for bribing the former South Korean president Park Geun-hye who was impeached and ousted from office for corruption and abuse of power.
As vice chairman of Samsung, Mr. Lee has been running the conglomerate since a heart attack incapacitated his father, Samsung Chairman Lee Kun-hee, in 2014. His father died last October, and Mr. Lee is his only son.
Samsung is the biggest and most lucrative of a handful of family-controlled conglomerates, or chaebol, that helped South Korea transform from a war-torn agrarian economy into a global export powerhouse. The group’s electronics unit, Samsung Electronics, alone accounts for nearly one-fifth of the country’s total exports.
But South Koreans have also grown weary of recurring corruption scandals among the chaebol. Mr. Lee’s father was twice convicted of bribery and other corruption charges, but never spent a day in jail, leading many to believe that Samsung was untouchable.
South Koreans have been divided over whether Mr. Lee was worth paroling.
Outside the Justice Ministry, where the parole committee met on Monday, activists opposed Mr. Lee’s parole, holding signs that said letting him walk without serving out his prison term would be another example of excessive leniency toward business tycoons convicted of corruption.
Ahead of Mr. Lee’s parole, the Justice Ministry had said it would make it easier for prisoners with good behavior to apply for parole. Until now, it had been rare for the ministry to parole inmates who have served less than 70 percent of their terms. Mr. Lee has finished serving 60 percent of the term, and critics accused the ministry of amending its parole guidelines in his favor.
But a majority of South Koreans supported Mr. Lee’s early release from prison, according to recent surveys. Other business tycoons, pro-business lobbies and even some of the politicians campaigning for the presidential election next March have called for Mr. Lee’s release.
“We included Vice Chairman Lee in the list of people who would be paroled, taking into account the national and global economic condition amid the prolonged Covid-19 pandemic,” the Justice minister, Park Beom-kye, said on Monday.
Samsung is run by an army of professional managers. But those who supported Mr. Lee’s parole argued that his imprisonment had created uncertainty at a time when the South Korean tech giant needed to make bold investments and acquisitions amid a global chip shortage.
Local media has added to public anxiety by reporting that with Mr. Lee locked away, Samsung was postponing key strategic decisions, including the location of a $17 billion chip plant in the United States, while rival chip makers like TSMC and Intel were making large investments.
But it was unclear how actively Mr. Lee could be involved in Samsung management after he was paroled. He had been banned on returning to work for five years, and the Justice Ministry did not lift that ban.
Mr. Lee also faces other legal trouble. He is on trial on separate criminal charges of stock price manipulation and unfair trading. Mr. Lee has said that he is innocent.
Senators spent a second weekend in a row wrangling over the details of a $1 trillion bipartisan infrastructure proposal, putting off a planned summer break. “We’re doing it the old-fashioned way,” Senator Mitt Romney, Republican of Utah, told reporters on Sunday about the many days of debate.
Republicans joined Democrats on Saturday and Sunday in two procedural votes supporting the plan to fund repairs of roads, bridges, ports and more, and to make American commutes more green with projects related to electric vehicles, biking and pedestrian access. Last night, they cleared the last hurdle before a final vote in the chamber, possibly late Monday or Tuesday.
What’s the holdup? About a dozen proposed amendments were bandied about. Some senators want states to have more leeway over how to repurpose pandemic relief funds. Others are demanding more money for public transit, which has been allotted about $40 billion, less than originally envisioned. In a rare moment of unity, the chamber broke out into spontaneous applause when Ted Cruz, a staunchly conservative Republican from Texas, and Raphael Warnock, a progressive Democrat from Georgia, made a joint highway proposal that got unanimous support.
But differences over how to regulate cryptocurrency threatened to derail the process. Two competing crypto amendments have caused an unexpected stir, with lawmakers advancing dueling changes to how the bill defines a “broker” in a provision intended to raise more tax revenue from crypto transactions. There is no agreement over whether the amendments will get considered for inclusion before a final vote is called, with a 30-hour deadline set to expire in the wee hours of Tuesday morning.
Former President Donald Trump threatened senators supporting the infrastructure proposal, saying they will pay in primaries. But few appear moved and many perceive a chance to distance themselves from Mr. Trump. The minority leader, Mitch McConnell, said the legislation had “an excellent chance” of becoming “a bipartisan success story for the country.” But Senator Todd Young, the Republican from Indiana who was part of the group that drafted the bill, said Sunday that he would not vote to pass it because of concerns about its cost.
A federal judge on Sunday granted Norwegian Cruise Line’s request for a preliminary injunction, temporarily allowing the company to require proof of vaccination from passengers despite a Florida law that bans businesses from doing so.
Gov. Ron DeSantis’s office said in an emailed statement on Monday that it plans to appeal the ruling. Mr. DeSantis signed a state law in May that set fines for businesses requiring customers to provide proof of vaccination.
Norwegian’s next cruise ship to sail from Florida is set for Aug. 15, out of Miami.In a statement on Sunday, the company said the ruling would allow it to “operate in the safest way possible.”
“We welcome today’s ruling that allows us to sail with 100 percent fully vaccinated guests and crew, which we believe is the safest and most prudent way to resume cruise operations amid this global pandemic,” said Frank Del Rio, the president and chief executive.
In the order, Judge Kathleen Williams of U.S. District Court noted that scientific research shows that “cruise lines are hotbeds for Covid-19 transmission.” She also cited the potential for the cruise line to suffer financially if Norwegian was forced to cancel trips or reroute around Florida.
Judge Williams wrote that the “defendant fails to articulate or provide any evidence of harms that the state would suffer if an injunction was entered,” and added that Norwegian “has demonstrated that public health will be jeopardized if it is required to suspend its vaccination requirement.”
A preliminary injunction generally will stay in effect until there is a final ruling in a lawsuit.
The judge’s order came as coronavirus cases have risen sharply in Florida. Over the past two weeks, cases have increased 84 percent and hospitalizations have doubled, according to New York Times data.
Crude oil futures fell on Monday, adding to sharp losses last week that came amid concerns that the Delta variant could threaten the global economic recovery.
West Texas Intermediate, the U.S. crude benchmark, fell as much as 4 percent before recovering some of those losses. The benchmark fell 7.7 percent last week, its sharpest weekly decline since last October.
The highly contagious Delta variant of the coronavirus has already led to new lockdowns in parts of Asia. Monday’s decline in oil prices came as China, the world’s second-largest economy, imposed new restrictions to try to contain its worst outbreak in more than a year.
The outbreak has grown to hundreds of cases and spread to more than half of mainland China’s 31 provinces, challenging the government’s zero-tolerance approach toward the virus.
“The concern is that China is a very large demand base and, if there are lockdowns and shutdowns because of the Delta variant, you might see a pullback on the demand side,” said Subadra Rajappa, head of rates strategy at Société Générale.
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The S&P 500 was down about 0.1 percent. Shares of oil producers including Occidental Petroleum and Devon Oil fell about 2 percent in midday trading.
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The Stoxx 600 Europe rose slightly, closing with a 0.2 percent gain, and Asian markets ended the day mixed, with China’s Shanghai Composite Index up 1 percent.
Democrats on Monday launched their push for the most significant expansion of the nation’s social safety net since the Great Society, unveiling a $3.5 trillion budget blueprint that would boost spending on health care, child and elder care, education and climate change while bypassing a promised Republican filibuster.
The blueprint, which the Senate hopes to pass by the end of this week, would allow Senate Democrats to piece together social policy legislation this fall, fully paid for by raising taxes on the wealthy, large inheritances and corporations. And if Democrats and their two independent allies can hold together, that measure could pass the Senate without a Republican vote.
That measure would pass after a separate $1 trillion bipartisan infrastructure bill likely clears the Senate on Tuesday. Together, they would secure the remainder of President Biden’s $4 trillion economic agenda, but the two-step effort will test Mr. Biden’s ability to both work with Republicans and maneuver around them.
“At its core, this legislation is about restoring the middle class in the 21st century and giving more Americans the opportunity to get there,” Senator Chuck Schumer of New York, the majority leader, wrote in a letter to his caucus. He said the instructions had been carefully coordinated with Speaker Nancy Pelosi of California and Representative John Yarmuth of Kentucky, the chairman of the House Budget Committee.
The budget blueprint, while nonbinding, calls for a series of key liberal priorities, including ones championed by Senator Bernie Sanders of Vermont, the independent chairman of the Senate Budget Committee. It calls for an expansion of Medicare to include dental, hearing and vision benefits, the formation of a Civilian Climate Corps to address climate change, and funding to establish universal pre-K and grant free community college tuition for two years.
“For too many decades, Congress has ignored the needs of the working class, the elderly, the children, the sick and the poor,” Mr. Sanders said in a statement. “Now is the time for bold action. Now is the time to restore faith in ordinary Americans that their government can work for them, and not just wealthy campaign contributors.”
It also accommodates key policy priorities like a path to citizenship for millions of undocumented immigrants and provisions to beef up enforcement of labor laws and penalties for employers that violate them. Democrats are trying to push the boundaries of the fast-track budget process to clear policy changes that otherwise would fail to gain Republican support, but the strict budgetary rules may ultimately prevent their inclusion.
Democrats appear to have rejected the possibility of addressing the approaching statutory limit on the federal government’s ability to finance the country’s debt in the budget blueprint. In a statement Monday morning, Janet Yellen, the Treasury secretary, said that Congress should address the debt ceiling in bipartisan legislation, even as Republicans warn they will not join with Democrats in doing so.
“The vast majority of the debt subject to the debt limit was accrued prior to the administration taking office,” Ms. Yellen said. “This is a shared responsibility, and I urge Congress to come together on a bipartisan basis as it has in the past to protect the full faith and credit of the United States.”
The decision is a major risk, since a default on the nation’s debt could trigger a global economic crisis. But raising the nation’s statutory borrowing limit in the budget resolution would come with political costs: to do it, Senate rules require that the provision includes a hard number for the debt ceiling increase.
Instead, Democrats would like to use separate legislation to extend the Treasury’s borrowing authority to a future date, not a dollar limit, which would require at least 10 Republicans joining with every senator that caucuses with the Democrats.
But Republicans, for their part, have made it clear that they have no intention of supporting such a maneuver. Even as many in the conference have supported moving forward with the $1 trillion bipartisan deal, they have railed against the reconciliation package as a “reckless tax and spending spree.”
“Democrats are about to tell Republicans to go take a hike and start teeing up trillions more dollars in borrowing and spending without a single Republican vote,” said Senator Mitch McConnell of Kentucky, the minority leader. “But at the same time they’re extolling the virtues of their latest socialist shopping list, they are afraid to up the limit on their credit card.”
Monday
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Job openings: Data from the Labor Department will show whether job openings in the U.S. continued to rise in June. Economists will learn whether the reopening of the economy is creating more demand for workers.
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Climate change: The Intergovernmental Panel on Climate Change, an entity within the United Nations, will release the first installment of a report that represents the global consensus on human-caused climate change.
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AMC earnings: The movie theater chain, with a wild ride during the pandemic that culminated in its stock tripling in a trading frenzy, will report its financial performance for the three months ending June 30. Will theater reopenings help it find a profit?
Tuesday
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Coinbase earnings: The cryptocurrency exchange will report its financial performance. The company’s share price has fallen 32 percent from where it started trading earlier this year, following a broad cryptocurrency sell-off.
Wednesday
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Consumer Price Index: Economists expect the index, a closely watched measure of inflation, to show that pandemic-driven price increases continued in July.
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Lordstown earnings: The struggling company, which aims to make electric pickup trucks, is set to publish its results for the second quarter. Its founder, Steve Burns, resigned as chief executive in June after claims that he overstated interest from commercial buyers in its electric truck.
Thursday
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United Kingdom G.D.P.: The Office for National Statistics is set to publish the U.K.’s gross domestic product estimates for the three months through June, covering when the country started to emerge from its winter lockdown.
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Disney earnings: Investors will be watching whether the immediate availability of “Black Widow,” “Luca,” “Cruella” on the company’s Disney+ streaming platform helped to drive sign-ups during the second quarter. In the first three months of the year, they were lower than Wall Street had expected.
As the A.F.L.-C.I.O. contemplates its future after the death of its longtime president, Richard Trumka, it is facing one inescapable fact: The U.S. labor movement is in an existential crisis, with unions representing a mere 7 percent of private-sector workers, Noam Scheiber reports for The New York Times.
“American workers’ level of collective bargaining coverage is not comparable to that of any other similar democracy,” said Larry Cohen, a former president of the Communications Workers of America. “If you’re not there to grow, you’re in trouble. You’re just playing defense. You’ll be here till someone turns the lights out.”
Mr. Trumka’s 12 years as A.F.L.-C.I.O. president coincided with the continued decline of organized labor but also moments of opportunity, like the election of a staunchly pro-labor U.S. president. With Mr. Trumka’s death last week, the federation faces a fundamental question: What is the A.F.L.-C.I.O.’s purpose?
For years, top union officials and senior staff members have split into two broad camps on this question. On one side are those who argue that the A.F.L.-C.I.O., which has about 12 million members, should play a supporting role for its constituent unions — that it should help build a consensus around policy and political priorities, lobby for them in Washington, provide research and communications support, and identify the best ways to organize and bargain.
On the other side of the debate are those who contend that the federation should play a leading role in building the labor movement — by investing resources in organizing more workers; by gaining a foothold in new sectors of the economy; by funding nontraditional worker organizations, like those representing undocumented workers; and by forging deeper alliances with other progressive groups, like those promoting civil rights causes.
Senator Elizabeth Warren of Massachusetts and her allies will propose a minimum tax on the profits of the nation’s richest companies, regardless of what they say they owe the government, as part of Democrat’s $3.5 trillion economic and social-policy package.
Ms. Warren’s so-called “real corporate profits tax” was a key part of her presidential campaign, and she has enlisted Senator Angus King, the Maine independent, to help press her case that profitable companies should be taxed, regardless of loopholes and maneuvers that have allowed many of them to avoid federal corporate income taxes altogether.
The measure would require the most profitable companies to pay a 7 percent tax on the earnings they report to investors — known as their annual book value — above $100 million. By taxing the earnings reported to investors, not to the Internal Revenue Service, Democrats would be hitting earnings that companies like to maximize, not the earnings they try hard to diminish for tax purposes.
“During the presidential campaign, Joe Biden and I disagreed on some tax policies, but there was one thing we strongly agreed on: corporations shouldn’t be able to tell shareholders they were making huge profits, then tell the I.R.S. they made nothing in profits,” Ms. Warren said in an interview.
After the passage of a $1 trillion bipartisan infrastructure bill, which is expected this week, Democrats will turn to a budget blueprint that will set the terms of a sprawling multi-trillion-dollar package intended to carry the remainder of their ambitions to shore up the nation’s social safety net and to pay for it by increasing taxes on wealthy individuals and corporations. If it clears the Senate, it is all but guaranteed to do so with votes coming only from the 50 senators who caucus with Democrats.
That package won’t fully materialize until the fall, but the unveiling of the bare-bones blueprint has spurred Democrats like Ms. Warren to offer their proposed contributions. Although proposals on items like free pre-K, community college and family leave have attracted much of the attention, how to pay for it, including proposed tax increases on the wealthy and corporations, will generate at least as much controversy. The campaign to further scrutinize wealthy corporations has been boosted by reporting from ProPublica that showed how the richest Americans pay very little taxes.
“Now is the time to put the revenues on the table to pay for our infrastructure plans — this is the moment,” Ms. Warren said.
In a separate interview, Mr. King answered the expected Republican criticism, saying, “It’s not socialism — it’s an attempt to have a fair tax at a pretty low level for companies that would otherwise pay zero.”
An economic analysis from Gabriel Zucman and Emmanuel Saez, economic professors at the University of California, Berkeley, who advised Ms. Warren during the presidential campaign, estimated that about 1,300 public corporations would be impacted by the policy, generating close to $700 billion between 2023 and 2032.
“We understand that responsible legislation includes showing how it will be paid for and making those payments come from the billionaires and giant corporations who have evaded paying their fair share for so long,” Ms. Warren said. “Getting the tax revenue part of the reconciliation package right is about making the playing field just a little more level for everyone.”
