Biden’s Inflation Bummer Summer With A Bummer From Summers

Americans Are Facing A ‘Bummer Summer’ Because ‘A Lot Of Things We Love To Do In The Summer’ Will Cost More This Year

“This is the least pandemic-y summer in two years, but inflation is dragging down the celebration. Most Americans are now getting their first taste of living in a high-inflation environment — and they don’t like it. Prices are up nearly across the board for a lot of things we love to do in the summer, including: Flying on a plane. Sending kids to camp. Booking a hotel room. Lighting fireworks. Renting a car. Buying food for your backyard barbecue. Regular gas prices now average $5/gallon, per AAA — and well over that in some parts of the country. Even if your pay has kept up with inflation (and not everyone’s has), the sticker shock can be demoralizing. … Dining out: For those who’ve taken a two-year break, there’s a bit of a Rip Van Winkle effect when it comes to eating at restaurants. Menu prices are eye-popping, and there’s more sticker shock when the check arrives — restaurants are adding ‘service fees’ and tacking on extra charges…” (“Caution: Bummer Summer Ahead,” Axios, 6/20/2022)

JASON FURMAN, Former Obama White House Council of Economic Advisors Chairman: “[P]eople have literally become poorer, by any concept, over the last year. Over the last 12-month period, just about everything has moved in the wrong direction. It should not be a mystery why people are worried.” (“The Comedown: After Stimulus Boom, Americans Face A Darkening Economy,” The Washington Post, 6/21/2022)

‘The Likelihood Of A Recession Has Increased Rapidly This Year As Inflationary Pressures Remained Strong’

“Soaring prices are hurting Americans. The cure is going to hurt, too. It may take a recession to stamp out inflation -- and it’s likely to happen on President Joe Biden’s watch. A downturn by the start of 2024, barely even on the radar just a few months ago, is now close to a three-in-four probability, according to the latest estimates by Bloomberg Economics. … Bloomberg Economics projections suggest Americans will still be pretty miserable come midterm election day. The economy might not be in recession by then — that’s only a one-in-four likelihood — but for many voters it will feel that way.” (“US Faces A Fed-Triggered Recession That May Cost Biden A Second Term,” Bloomberg, 6/15/2022)

“Economists surveyed by The Wall Street Journal have dramatically raised the probability of recession, now putting it at 44% in the next 12 months, a level usually seen only on the brink of or during actual recessions. The likelihood of a recession has increased rapidly this year as inflationary pressures remained strong and the Federal Reserve took increasingly aggressive action to tame them. Economists on average put the probability of the economy being in recession sometime in the next 12 months at 28% in the Journal’s last survey in April and at 18% in January. Since the Journal began asking the question in mid-2005, a 44% recession probability is seldom seen outside of an actual recession. In December 2007, the month that the 2007-to-2009 recession began, economists assigned a 38% probability. In February 2020, when the last recession began, they assigned a 26% probability.” (“Recession Probability Soars as Inflation Worsens,” The Wall Street Journal, 6/19/2022)

“Goldman Sachs Group Inc. economists cut their US growth forecasts and warned that the risk of recession is rising. The Goldman team now sees a 30% probability of entering a recession over the next year, up from 15% previously, and a 25% conditional probability of entering a recession in the second year if one is avoided in the first, they wrote in a Monday research note. That implies a 48% cumulative probability in the next two years versus 35% previously.” (“Goldman Warns US Recession Risk Now Higher and More Front-Loaded,” Bloomberg, 6/20/2022)

“Deutsche Bank AG’s chief executive officer warned the global economy may be headed for a recession as central banks step up efforts to curb inflation, joining a growing chorus of executives and policy makers who are painting a pessimistic picture. … ‘At least I would say we have 50% likelihood of a recession globally,’ the Deutsche Bank CEO said in an interview. In the US and Europe, ‘the likelihood of a recession coming in the second half of 2023, while at the same time the interest rates go up, is obviously up versus the forecasts we had before the war broke out’ in Ukraine.” (“Deutsche Bank, Citi See 50% Recession Chance As Rates Rise,” Bloomberg, 6/22/2022)

“[Deutsche Bank CEO’s] comments came on the same day that analysts at Citigroup Inc. made a similar prediction, citing supply shocks and higher interest rates. Sewing said despite the impact on economic growth, he supported the actions by central banks including the US Federal Reserve because they’re needed to bring down inflation, which he called a risk to democracy, to a more sustainable level. … ‘The experience of history indicates that disinflation often carries meaningful costs for growth and we see the aggregate probability of recession as now approaching 50%,’ the Citigroup economists wrote. ‘Central banks may yet engineer the soft -- or ‘softish’ -- landings embodies in their forecasts (and in ours), but this will require supply shocks to ebb and demand to remain resilient.’” (“Deutsche Bank, Citi See 50% Recession Chance As Rates Rise,” Bloomberg, 6/22/2022)

Larry Summers Said It Would Take Several Years Of Higher Unemployment To Bring Down Inflation

“Former Treasury Secretary Lawrence Summers said the US jobless rate would need to rise above 5% for a sustained period in order to curb inflation that’s running at the hottest pace in four decades. ‘We need five years of unemployment above 5% to contain inflation -- in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment,’ Summers said in a speech in London Monday. ‘There are numbers that are remarkably discouraging relative to the Fed Reserve view.’” (“Larry Summers Says US Needs 5% Jobless Rate for Five Years to Ease Inflation,” Bloomberg, 6/20/2022)

Fearing A Recession, Companies Are Starting To Drop Open Jobs And Dial Back Hiring Plans

“More than six out of ten CEOs expect a recession before the end of next year in the region where their company primarily operates, and an additional 15% think a recession has already hit, according to a Conference Board survey of 750 CEOs and other C-suite executives conducted in mid-May. Since then, the benchmark S&P 500 has fallen further and the Federal Reserve last week raised interest rates by the most since 1994, with the expectation that inflation will cool and the US unemployment rate will rise to 4.1% by 2024, from 3.6% today.” (“Recession-Fearing Bosses Quietly Abandon Open Jobs,” Bloomberg, 6/21/2022)

“Companies that have struggled to fill job openings in the US for long stretches are starting to ask a pressing question: Do we really need those roles? With interest rates soaring, stocks tanking and fears of a recession mounting, employers are axing jobs or dialing back their once-breakneck hiring plans. Amazon.com Inc. and Walmart Inc., America’s two biggest private employers, have said they’re thinning out their hourly workforces through attrition. Jobless claims, while still low, have risen slightly, based on a four-week moving average that smooths out weekly volatility. The pace of job postings has also slowed in recent weeks, according to data from career site Indeed, and not just in the hard-hit tech sector: Even hospitality job opportunities have decelerated, although they’re still above pre-pandemic levels. Those vacancies are staying unfilled for longer periods as increasingly skittish executives slow-walk the recruitment process. Reluctant to say they’re curtailing or even freezing hiring, companies instead couch their moves with corporate jargon like a ‘review of business processes.’” (“Recession-Fearing Bosses Quietly Abandon Open Jobs,” Bloomberg, 6/21/2022)

• “White-collar workers, keen to resign just months or even weeks ago for higher pay or a more flexible work arrangement, are now reassessing whether it’s worth jumping ship in choppier waters, according to recruitment experts.” (“Recession-Fearing Bosses Quietly Abandon Open Jobs,” Bloomberg, 6/21/2022)

Inflation And A Tight Job Market Already Have Small Businesses Falling Behind

“Small businesses are losing ground in the hiring game. Head counts at companies with fewer than 50 employees declined in three of the past four months, according to ADP payroll data, even as employment at larger firms continued to grow. Owners of many small companies say inflation has added to the pressures of an already tight job market, making it increasingly difficult to keep pace with the wages and benefits offered by large employers. The hiring challenges are stunting growth, small-business owners say, and further clouding their deteriorating economic outlook. … Sixty-three percent of small-business owners say that hiring challenges are affecting their ability to operate at full capacity, according to a June survey of more than 825 small businesses for The Wall Street Journal by Vistage Worldwide Inc., a business coaching and peer advisory firm.” (“Small Businesses Fall Behind On Hiring As Inflation Takes A Toll,” The Wall Street Journal, 6/20/2022)

“Small-business confidence continues to fall, dropping in June to lows last seen in July 2020, the Vistage data show. Nine percent of small-business owners expect U.S. economic conditions to improve over the next 12 months, down from 12% in May and 53% in June 2021. Despite their economic worries, 52% of small-business owners expect head counts to increase in the coming year, the survey found. Like companies of all sizes, small businesses are spending more to attract and retain workers. Seventy-six percent of small-business owners said they had boosted wages in response to labor-market challenges, according to the Vistage survey, while 44% reported adding employee benefits.” (“Small Businesses Fall Behind On Hiring As Inflation Takes A Toll,” The Wall Street Journal, 6/20/2022)

“Many business owners in Bucks County [Pennsylvania] say demand is keeping up for now, but worry that it is at risk if persistent inflation forces them to implement another round of price hikes. Owen Burke, 20, the part-owner of the diner Coach’s, already raised the price of his Philly cheesesteak — called the ‘Buck’ — from $9 to $11.95 in response to the rising costs of ingredients. His supplier just increased his price tag for fries from $30 to $50 for a case of seven bags. Some customers grumbled but most kept buying, though Burke is now worried they’ll revolt if he raises prices again. The duration of the price hikes makes them particularly anxiety-inducing, because businesses can’t anticipate their impact on future sales. Up the street from Coach’s, James Lamb, 43, pointed at a row of candy bars and let out a small sigh. Already, his Evolution Candy store in downtown Doylesville had raised the price of Charms sour balls from $2 to $2.25. One of the store’s novelty items, a roughly foot-long Rice Krispy treat, once sold for $19.95 but now goes for $25.95. And the store may have to raise the price of their traditional candy bars — like Hershey’s and Twix — from $1.50 to $1.65. ‘We want to go for $1.65, but the community might not be ready for it,’ Lamb said. ‘We’re eating some things,’ he said of the higher prices being paid to suppliers, ‘because we can’t eat it all at once and hike everything.’” (“The Comedown: After Stimulus Boom, Americans Face A Darkening Economy,” The Washington Post, 6/21/2022)

Meanwhile, Inflation Is ‘Evaporating’ Money Secured For Projects In The Bipartisan Infrastructure Bill, And Eventually, Local Taxpayers Will Be Stuck Paying For The Increase In Costs

“Inflation is taking a toll on infrastructure projects across the U.S., driving up costs so much that state and local officials are postponing projects, scaling back others and reprioritizing their needs. The price hikes already are diminishing the value of a $1 trillion infrastructure plan President Joe Biden signed into law just seven months ago. That law had included, among other things, a roughly 25% increase in regular highway program funding for states. ‘Those dollars are essentially evaporating,’ said Jim Tymon, executive director of the American Association of State Highway and Transportation Officials. ‘The cost of those projects is going up by 20%, by 30%, and just wiping out that increase from the federal government that they were so excited about earlier in the year.’” (“Inflation Taking Bite Out Of New Infrastructure Projects,” The Associated Press, 6/19/2022)

‘If This Inflation Keeps The Way It Is, We Will Have To Roll Projects From One Year Into The Next, Into The Next, Into The Next’

“Consumer prices surged 8.6% in May over last year, the highest rate since 1981, according to the U.S. Department of Labor. Prices for some key materials in infrastructure construction have risen even more. Prices paid to U.S. manufacturers of asphalt paving and tar mixtures were up 14% in May compared to last year, according to data from the Federal Reserve Bank of St. Louis. Prices for fabricated steel plate, used in bridges, were up 23%, and ductile iron pipes and fittings — used by water systems — were nearly 25% higher.” (“Inflation Taking Bite Out Of New Infrastructure Projects,” The Associated Press, 6/19/2022)

• “The price of a foot of water pipe in Tucson, Arizona: up 19%. The cost of a ton of asphalt in a small Massachusetts town: up 37%. The estimate to build a new airport terminal in Des Moines, Iowa: 69% higher, with a several year delay.” (“Inflation Taking Bite Out Of New Infrastructure Projects,” The Associated Press, 6/19/2022)

• “In Casper, Wyoming, the low bid to rebuild a major intersection and construct a new bridge over the North Platte River came in at $35 million this spring — 55% over a state engineer’s estimate. The bid was rejected and the project delayed as state officials re-evaluate their options. ‘If this inflation keeps the way it is, we will have to roll projects from one year into the next, into the next, into the next,’ said Mark Gillett, chief engineer of the Wyoming Department of Transportation. Gillett had hoped the federal Infrastructure Investment and Jobs Act would finance a boom in highway and bridge construction. ‘But it’s just not going to go as far as we had hoped,’ he said.” (“Inflation Taking Bite Out Of New Infrastructure Projects,” The Associated Press, 6/19/2022)

• “Officials at Des Moines International Airport were counting on the federal infrastructure money to replace an aging terminal with a modern structure. Four years ago, a new 14-gate terminal was projected to cost about $434 million and be open by 2026. By this spring, the cost had soared to $733 million. That’s more than the airport can afford, even with the federal aid. So officials are planning to break the project into phases, building just five new gates by 2026 at a cost of $411 million. ‘If inflation continues, it may be a decade before the project gets completely done,’ airport Executive Director Kevin Foley said.” (“Inflation Taking Bite Out Of New Infrastructure Projects,” The Associated Press, 6/19/2022)

• “Low bids for a series of bridge repairs along Interstate 55 in St. Louis came in at $63 million this year, 57% over the budgeted amount. Overall, Missouri’s highway construction costs for the fiscal year ending in June were $139 million over budget — an 11% increase that marked a ‘pretty significant swing’ from several under-budget years, said state Department of Transportation Director Patrick McKenna. Though Missouri forged ahead with this year’s projects, inflation ‘will take a bite out of the future,’ McKenna said.” (“Inflation Taking Bite Out Of New Infrastructure Projects,” The Associated Press, 6/19/2022)

• “When bids for a road project in Lansing, Michigan, came in 60% above estimates, the city rebid the project and cut its scope in half, said Andrew Kilpatrick, public service director and acting city engineer. In Huntington, Massachusetts, a 1.5-mile stretch of road won’t be finished this year after a 37% spike in the price of liquid asphalt increased the cost for paving a mile to about $140,000. The town gets $159,000 annually in state funding for its roads, highway superintendent Charles Dazelle said. ‘Right now, one mile of road, that’s one year. That is doing nothing else,’ Dazelle said.” (“Inflation Taking Bite Out Of New Infrastructure Projects,” The Associated Press, 6/19/2022)

‘To Sum It Up, We’re Doing Less Work For The Same Amount Of Money,’ ‘In The End, It’s Going To Be The Rate Payers That Suffer’

“Public water systems across the country also are straining under inflation. When Tucson, Arizona, launched the first part of a four-phase water main replacement project in September 2020, ductile iron pipe cost $75-a-foot and a gate valve cost $3,000. When it bid the most recent phase this spring, pipe costs had risen to nearly $90-a-foot and gate valves to nearly $4,100. The city is now prioritizing what other projects it can afford, and which ones have to wait. ‘To sum it up, we’re doing less work for the same amount of money,’ said Tucson’s chief water engineer, Scott Schladweiler. The city of Tacoma, Washington, also is altering some of its planned water main replacements because of rising costs. ‘Some of them are getting delayed, some of them are being reduced in scope, and it’s forcing us to re-evaluate some of the budgets that we’ve set forth,’ said Ali Polda, principal engineer in the city’s water department. Residents in a neighborhood west of Little Rock, Arkansas, will pay a $146 monthly surcharge to Central Arkansas Water to install new water lines. The charge is 17% more than originally planned because of spikes in construction costs. Other public utilities also will have to choose between scaling back work and passing along costs to customers, said Michael Arceneaux, acting CEO of the Association of Metropolitan Water Agencies. ‘In the end, it’s going to be the rate payers that suffer,’ he said, ‘because the projects have to get done, and funding will have to come from the rate payers.’” (“Inflation Taking Bite Out Of New Infrastructure Projects,” The Associated Press, 6/19/2022)

And The Only Ideas The White House Has Had Recently … Would Actually Be Inflationary

“President Joe Biden called on Congress Wednesday to suspend federal gasoline and diesel taxes for three months … At issue is the 18.4 cents-a-gallon federal tax on gas and the 24.4 cents-a-gallon federal tax on diesel fuel…. But many economists and lawmakers from both parties view the idea of a gas tax holiday with skepticism.” (“Biden Calls For Three-Month Federal Gas Tax ‘Holiday,’” CBS News, 6/22/2022)

• JASON FURMAN, Former Obama White House Council of Economic Advisors Chairman: “Whatever you thought of the merits of a gas tax holiday in February it is a worse idea now. Refineries are even more constrained now so supply is nearly fully inelastic…. Needless to say, a gas tax holiday would also add to inflation.” (Jason Furman, @jasonfurman, Twitter, 6/21/2022)

“Biden officials are taking a second look at whether the federal government could send rebate cards out to millions of American drivers to help them pay at gas stations — an idea they examined months ago before ruling it out. Aides had found that shortages in the U.S. chip industry would make it hard to produce enough rebate cards, two people familiar with the matter said. White House officials also fear there would be no way to prevent consumers from using them for purchases other than gasoline, according to another person familiar with the discussions.” (“White House Exploration Of Gas Rebate Cards Complicated By Chip Shortages,” The Washington Post, 6/17/2022)