Category: Economy

With as much as 60% of U.S. consumers living paycheck to paycheck, it’s not a surprise to see that the spending cutbacks have started. Even with a strong job market and wage gains, as well as Covid stimulus savings, pricing spikes in core spending categories including food, gas and shelter are leading more Americans to mind their pocketbooks closely.

A new survey from CNBC and Momentive finds rising concerns about inflation and the risk of recession, and Americans saying not only have started buying less but will be buying less across more categories if inflation persists. But these financial stress points are not limited to lower-income consumers. The survey finds American with incomes of at least $100,000 saying they’ve cut back on spending, or may soon do so, in numbers that are not far off the decisions being made by lower-income groups.

The high-income consumer demographic is key to the economy. While it represents only one-third of consumers, it is responsible for up to three-quarters of the spending. As Mark Zandi, chief economist at Moody’s notes, “If the high-income consumers are out buying, we won’t see a big impact on raw consumer activity.”

Lower-income households are the most at risk, and they are the ones most likely to be making unwelcome tradeoffs to make their money stretch as far as it did just a few months ago, according to the survey results. They are also clearly experiencing more financial anxiety, according to the survey, with 57% of Americans with income under $50,000 saying they are under more stress than a year ago, versus 45% of those with incomes of $100,000 or more. The 68% of high-income consumers who said they are worried higher prices will force them to rethink financial decisions is significantly lower than the 82% of Americans with income of $50,000 or less who told the survey this, but it is still a majority.

More than half of people with household incomes under $50,000 say they have already cut back on multiple expenses due to prices, and for those with income of at least $100,000, the cutback levels are already similar when it comes to dining out, taking vacations, and buying a car.

“People making six-figure incomes are almost as worried about inflation as people making half as much —and they are just as likely to be taking steps to mitigate its effect on their lives,” said Laura Wronski, senior manager of research science at Momentive. “Inflation is a problem that compounds over time, and even high-income individuals won’t be insulated from the second- and third-order effects of price increases,” she said.

Other recent consumer survey data paints a weakening picture.

The University of Michigan Survey of Consumers finds more consumers mentioning reduced living standards due to rising inflation than at any other time in the survey’s history except during the two worst recessions in the past 50 years: from March 1979 to April 1981 and from May to October 2008. Notably, the consumer confidence gap between low and high income levels always shrinks at cyclical troughs and is always widest at peak, and the gap is narrowing now, according to survey director Richard Curtin. 

In January, the percentage point gap between the lowest income and highest income group in the survey’s sentiment index was 13.2 points. That was erased in March, with the top income group sentiment actually dipping below the lowest income bracket in overall sentiment and future expectations. In January, the higher income group expectations, specifically, were 18 percentage points higher.

Right now, there is a unique set of issues that could be exacerbating this gap narrowing, Curtin said, including the potential for Russia’s invasion of Ukraine to do more damage to the global economy than forecast and the fact that the majority of the population has not experienced 10%+ inflation, or 15% mortgage rates, as past generations had.

“Even at lower rates they may display behaviors associated with more extreme economic conditions in the past,” Curtin said. “Precautionary motives play a big part in consumption trends for upper income groups,” he added.

“The American consumer is in a dark mood,” Zandi said of the CNBC survey data. More than two years since the pandemic hit, first with millions of lost jobs and high unemployment, and now high inflation, and “fractured politics also weighing heavily on the collective psyche.”

All income groups in the survey are equally likely to say the economy will enter a recession this year, at over 80%. But there is a key caveat: actual spending actions from the economy don’t yet indicate this prediction will come true.

Despite the downbeat feelings about their financial situations, and cutbacks, Zandi stressed that consumers are still spending strongly. There are now lots of jobs, unemployment is low, debt loads are light, asset prices are high, and there is a lot of excess saving. Even if people are cutting back, spending less on some items, the mood has not yet taken control of the spending motivation to a degree that amounts to more than a slowdown in economic growth. “I suspect the American consumer will continue spending, regardless of their mood, as long as the job market remains strong,” Zandi said.

The Conference Board’s latest monthly confidence index reading showed present confidence up (slightly) for the first time this year, but the expectations index lower, with consumers citing rising prices, including gas.

Lynn Franco, director of economic indicators and surveys at The Conference Board, said there is still a gap in its confidence data between lower income and higher income consumers and a lot of that is driven by the inflationary environment, and less impact the affluent will feel from factors including gas prices. She said the gap does always narrow in a pre-recession period — but its data is not indicating a recession as of now.

What its confidence survey is forecasting is a slowdown in growth over the next few quarters driven by higher prices, and more Americans spending less on discretionary items as more of their money goes to covering the basics. That will be most acutely felt by the lower-income consumers, but there is broad-based concern about prices rising significantly in the months ahead — 6 out of every 10 consumers surveyed by The Conference Board think the Russia-Ukraine war will cause prices to rise significantly.

“That is very broad-based and that, coupled with interest rates going up, may make people more hesitant to postpone big-ticket purchases likes housing and autos and washing machines,” Franco said. “We will see a bit of slowing in consumer spending over the next few quarters, but we don’t feel that will drive us into recession.”

The overall confidence level from Americans with income of $125,000 in its survey has come back down from mid-2021, but Franco described them as still “relatively confident despite all volatility we have seen. … The indications we are getting across income groups speaks more towards softening in consumer spending rather than a severe pullback,” she said.

The Conference Board data, similar to other outlooks, is underpinned by a key role for the labor market in supporting confidence and balancing the negative influence of inflation, with Americans who say jobs are “plentiful” at an all-time high. 

Members of the CNBC CFO Council have mentioned “a tale of two cities” among consumers, with higher income bracket consumers continuing to be strong while lower income consumers are beginning to chew through the stimulus. There will be a new equilibrium point, and inflation won’t grow as it has over the past year, but it will remain at a higher level, and the consumer spending has to be set against this dynamic that will play out through calendar year 2022, and is expected to be more sharply felt in the second half of the year.

Key factors that CFOs are watching include the decline in the consumer savings rate; how successful the Fed is in using its tools to slow the economy without pushing it into recession, including raising rates to cool consumption and investment; and greater supply chain stability.

The supply chain remains in flux with new Covid variants, as well as the Russian war against Ukraine hitting energy and food prices. But if supply chain pressures overall do ease, inventory will be replenished at a rate that could lead to more pushback from retailers on pricing, as consumers also begin to slow down consumption habits, trading down in certain categories of purchases or trading away from them.

The Conference Board’s most recent CEO survey showed that companies are passing along the costs of inflation relatively quickly to consumers, and that pattern is likely to continue in the months ahead, with wage gains a contributing factor. “What we are seeing and hearing from members is that these tight labor market conditions are going to continue for several months, so we will continue to see wage pressure,” Franco said.

As earnings come in, the market will be looking for signs of durable consumer strength amid higher prices. Earlier this week, Conagra’s results showed that it couldn’t make price increases flow through to its bottom line relative to input costs, but CEO Sean Connolly said on Thursday that “consumer demand has remained strong in the face of our pricing actions to date.”

Conagra is planning more price increases.

The view that higher interest rates help stamp out inflation is essentially an article of faith, based on long-held economic gospel of supply and demand.

But how does it really work? And will it work this time around, when bloated prices seem at least partially beyond the reach of conventional monetary policy?

It is this dilemma that has Wall Street confused and markets volatile.

In normal times, the Federal Reserve is seen as the cavalry coming into quell soaring prices. But this time, the central bank is going to need some help.

“Can the Fed bring down inflation on their own? I think the answer is ‘no,'” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “They certainly can help rein in the demand side by higher interest rates. But it’s not going to unload container ships, it’s not going to reopen production capacity in China, it’s not going to hire the long-haul truckers we need to get things across the country.”

Still, policymakers are going to try to slow down the economy and subdue inflation.

The approach is two-pronged: The central bank will raise benchmark short-term interest rates while also reducing the more than $8 trillion in bonds it has accumulated over the years to help keep money flowing through the economy.

Under the Fed blueprint, the transmission from those actions into lower inflation goes something like this:

The higher rates make money costlier and borrowing less appealing. That, in turn, slows demand to catch up with supply, which has lagged badly throughout the pandemic. Less demand means merchants will be under pressure to cut prices to lure people to buy their products.

Potential effects include lower wages, a halt or even a drop in soaring home prices and, yes, a decline in valuations for a stock market that has thus far held up fairly well in the face of soaring inflation and the fallout from the war in Ukraine.

“The Fed has been reasonably successful in convincing markets that they have their eye on the ball, and long-term inflation expectations have been held in check,” Baird said. “As we look forward, that will continue to be the primary focus. It’s something that we’re watching very closely, to make sure that investors don’t lose faith in [the central bank’s] ability to keep a lid on long-term inflation.”

Consumer inflation rose at a 7.9% annual pace in February and probably surged at an even faster pace in March. Gasoline prices jumped 38% during the 12-month period, while food rose 7.9% and shelter costs were up 4.7%, according to the Labor Department.

There’s also a psychological factor in the equation: Inflation is thought to be something of a self-fulfilling prophecy. When the public thinks the cost of living will be higher, they adjust their behavior accordingly. Businesses boost the prices they charge and workers demand better wages. That rinse-and-repeat cycle can potentially drive inflation even higher.

That’s why Fed officials not only have approved their first rate hike in more than three years, but they also have talked tough on inflation, in an effort to dampen future expectations.

In that vein, Fed Governor Lael Brainard — long a proponent of lower rates — delivered a speech Tuesday that stunned markets when she said policy needs to get a lot tighter.

It’s a combination of these approaches — tangible moves on policy rates, plus “forward guidance” on where things are headed — that the Fed hopes will bring down inflation.

“They do need to slow growth,” said Mark Zandi, chief economist at Moody’s Analytics. “If they take a little bit of the steam out of the equity market and credit spreads widen and underwriting standards get a little tighter and housing-price growth slows, all those things will contribute to a slowing in the growth in demand. That’s a key part of what they’re trying to do here, trying to get financial conditions to tighten up a bit so that demand growth slows and the economy will moderate.”

Financial conditions by historical standards are currently considered loose, though getting tighter.

Indeed, there are a lot of moving parts, and policymakers’ biggest fear is that in tamping down inflation they don’t bring the rest of the economy down at the same time.

“They need a little bit of luck here. If they get it I think they’ll be able to pull it off,” Zandi said. “If they do, inflation will moderate as supply-side problems abate and demand growth slows. If they’re unable to keep inflation expectations tethered, then no, we’re going into a stagflation scenario and they’re going to need to pull the economy into a recession.”

(Worth noting: Some at the Fed don’t believe expectations matter. This widely discussed white paper by one of the central bank’s own economists in 2021 expressed doubt about the impact, saying the belief rests on “extremely shaky foundations.”)

People around during the last serious bout of stagflation, in the late 1970s and early 1980s, remember that impact well. Faced with runaway prices, then-Fed Chair Paul Volcker spearheaded an effort to jack up the fed funds rate to nearly 20%, plunging the economy into a recession before taming the inflation beast.

Needless to say, Fed officials want to avoid a Volcker-like scenario. But after months of insisting that inflation was “transitory,” a late-to-the-party central bank is forced now to tighten quickly.

“Whether or not what they’ve got plotted out is enough, we will find out in time,” Paul McCulley, former chief economist at bond giant Pimco and now a senior fellow at Cornell, told CNBC in a Wednesday interview. “What they’re telling us is, if it’s not enough we will do more, which is implicitly recognizing that they will increase downside risks for the economy. But they are having their Volcker moment.”

To be sure, odds of a recession appear low for now, even with the momentary yield curve inversion that often portends downturns.

One of the most widely held beliefs is that employment, and specifically the demand for workers, is just too strong to generate a recession. There are about 5 million more job openings now than there is available labor, according to the Labor Department, reflecting one of the tightest jobs markets in history.

But that situation is contributing to surging wages, which were up 5.6% from a year ago in March. Goldman Sachs economists say the jobs gap is a situation the Fed must address or risk persistent inflation. The firm said the Fed may need to take gross domestic product growth down to the 1%-1.5% annual range to slow the jobs market, which implies an even higher policy rate than the markets are currency pricing — and less wiggle room for the economy to tip into at least a shallow downturn.

So it’s a delicate balance for the Fed as it tries to use its monetary arsenal to bring down prices.

Joseph LaVorgna, chief economist for the Americas at Natixis, is worried that a wobbly growth picture now could test the Fed’s resolve.

“Outside of recession, you’re not going to get inflation down,” said LaVorgna, who was chief economist at the National Economic Council under former President Donald Trump. “It’s very easy for the Fed to talk tough now. But if you go a few more hikes and all of a sudden the employment picture shows weakness, is the Fed really going to keep talking tough?”

LaVorgna is watching the steady growth of prices that are not subject to economic cycles and are rising just as quickly as cyclical products. They also may not be as subject to the pressure from interest rates and are rising for reasons not tied to loose policy.

“If you think about inflation, you have to slow demand,” he said. “Now we’ve got a supply component to it. They can’t do anything about supply, that’s why they may have to compress demand more than they normally would. That’s where you get recession.”

Surging inflation has Americans reconsidering how they spend their money.

The Consumer Price Index, which measures a wide-ranging basket of goods and services, jumped 7.9% in February from 12 months prior. Prices are going up on everything from the food you put on the table to the gas that powers your car.

That’s weighing heavily on people’s minds, with 48% thinking about rising prices all the time, according to a CNBC + Acorns Invest in You survey, conducted by Momentive. The online poll was conducted March 23-24 among a national sample of 3,953 adults.

Three-quarters are worried that higher prices will force them to rethink their financial choices in the coming months, the survey found.

Inflation is costing the average U.S. household an additional $296 per month, according to a Moody’s Analytics analysis. Experts expect it to get worse before it gets better.

Still, there hasn’t been a significant impact on consumer spending, although retail sales grew at a slower pace than expected in February.

The biggest area people have cut back on is dining out, with 53% saying they’ve done so, according to the survey. They are also driving less and canceling monthly subscriptions, among other things.

If higher prices persist, dining out, driving and trips or vacations are the top three areas Americans plan to cut back on even more.

To be sure, the past year has been difficult for many. Fully 52% said they are under more financial stress than a year ago. They are most concerned about gas prices, housing costs and food costs. In the last year, gas spiked 38%, shelter rose 4.7% and food prices increased 7.9%.

Meanwhile, a bulk of Americans are unhappy with the response from the White House, with 61% disapproving of the way President Joe Biden is handling inflation.

The current environment has a majority of Americans concerned about an economic recession, with 81% of respondents believing one is likely to happen this year.

“People are definitely on edge,” said Moody’s Analytics’ chief economist Mark Zandi. “Recession risks are high.”

He puts the odds at 1 in 3 and rising.

Inflation was brought on by the pandemic, which scrambled supply chains and labor markets, and worsened by the Russian invasion of Ukraine, which impacted gas and food prices, Zandi explained.

“If that diagnosis is correct, as the pandemic fades and as we get the other side of the fallout of the Russian invasion, inflation should moderate,” he said.

However, consumers will be in for some more pain in the near term, as inflation continues, Zandi said.

“We’ve got a couple of bad months dead ahead,” he said.

He predicts inflation will peak around May and by this time next year, it will be a lot lower, depending on how global events play out, as well as the response by the Federal Reserve. The central bank increased interest rates last month to combat inflation and plans another six hikes this year.

If the Fed doesn’t calibrate things just right, the economy can go into a recession, Zandi warned.

The first thing you should do is get a handle on your financial situation.

Asking yourself some key questions can help you figure out where you may be able to trim expenses, said certified financial planner Ashton Lawrence, a partner at Goldfinch Wealth Management in Greenville, South Carolina.

“What’s the cash flow look like? What type of debt, how much debt are we looking at?” he said.

“It’s about making the small changes and controlling where you can control.”

More from Invest in You:
Most Americans are worried about a recession hitting this year
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Once you see where you are spending money, break it down into needs and wants, and begin to cut back on things that are optional, said CFP Carolyn McClanahan, founder and director of financial planning at Life Planning Partners in Jacksonville, Florida.

In fact, eating out all the time not only costs more money than cooking at home, it’s also not as healthy, said McClanahan, who is also a medical doctor. When at the grocery store, use coupons and comparison shopping to help you save money.

There will be nights when time is tight and you are tempted to order takeout for dinner. McClanahan cooks in bulk on Sundays and puts meals in the freezer for those nights.

Carpooling or planning car trips to minimize driving can help with gas, as can working from home a few days a week, if feasible.

While it is natural to be concerned about rising prices, you can’t control them — and worrying about it isn’t good for your health, McClanahan said.

“Only think about the things that you can control,” she said.

“Making certain you are spending your money in a thoughtful fashion is the one thing you can do to help mitigate the outside world around you.”

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

After two years of the coronavirus pandemic, a recession and a rapid recovery, Americans are worried that the economy may swiftly decline once again.

Some 81% of adults said they think the U.S. economy is likely to experience a recession in 2022, according to the CNBC + Acorns Invest in You survey, conducted by Momentive. The online survey of nearly 4,000 adults was conducted from March 23 to 24.  

Certain groups are anticipating a potential economic downturn more than others, the survey found. That includes Republicans, who are more likely to think there will be a recession than Democrats, as well as those who see themselves as financially worse off this year than they were last year.

What a recession means

The National Bureau of Economic Research, the arbiter of calling recessions, defines one as “significant decline in economic activity that is spread across the economy and lasts more than a few months.”

The last recorded recession took place in 2020, when the coronavirus pandemic spurred mass shutdowns and layoffs across the U.S.

Since, however, the U.S. economy has seen a stunning recovery. The labor market has added back millions of jobs and is nearing its pre-pandemic state. In addition, wages have gone up for many workers, including those in lower-paying jobs.

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Because of this, many economists aren’t too concerned that a recession is on the horizon.  

“If you look at the labor market data right now, you’d be hard pressed to find any indication of recession,” said Nick Bunker, economic research director for North America at the Indeed Hiring Lab. “Maybe a relative slowdown, but that’s from really hot to just hot.”

Risks on the horizon

Even though the labor recovery is still going strong, there are other forces impacting consumers.

Inflation, for example, has hit many Americans hard and could hinder the economic recovery. In February, the consumer price index surged 7.9% on the year, the highest since January 1982. Prices have gone up in many categories such as housing, food and energy.

“Inflation is the boogeyman when it comes to recoveries,” said Robert Frick, corporate economist at the Navy Federal Credit Union.

That’s because if prices continue to climb — as they’re projected to — people may begin to pull back on spending, which could lead businesses to halt hiring. The Federal Reserve is also poised to continue to raise interest rates, which will slow down the economy to curb inflation.

This is a blunt tool, however, according to Bunker. The central bank must be careful to cool the economy enough to bring prices back down without tipping the U.S. into another recession.

There’s also geopolitical uncertainty around the war in Ukraine, which has contributed to rising fuel prices and will likely continue to pressure the global economy. In addition, the yield curve between the 2-year and 10-year U.S. Treasury bonds recently inverted for the first time since 2019, a signal that has preceded recessions in the past.

Still, this isn’t a sure sign that a recession is on the horizon, said Frick.

“Of all the things you have to worry about, I don’t think that the yield curve inverting is one of them,” he said.

What to do now

While it may be too early for Americans to prepare for a recession, they could take steps now to better their financial situation regardless.

That includes boosting emergency and retirement savings, as well as trimming budgets to keep spending down amid inflation that’s likely to continue.

“It pays to take a step back and look at the positives and weigh the negatives against historical evidence,” Frick said. “If you do that with the odds of recession, they’re still relatively low, but risks are high, and uncertainty is high.”

SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox. For the Spanish version Dinero 101, click here.

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

Federal Reserve Governor Lael Brainard, who normally favors loose policy and low rates, said Tuesday the central bank needs to act quickly and aggressively to drive down inflation.

In a speech written for a Minneapolis Fed discussion, Brainard said policy tightening will include a speedy reduction in the balance sheet and a steady pace of interest rate increases. Her comments indicated that rate moves could be higher than the traditional increments of 0.25 percentage point.

“Currently, inflation is much too high and is subject to upside risks,” she said in prepared remarks. “The [Federal Open Market] Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.”

The Fed already has approved one interest rate increase: a 0.25% hike at the March meeting, the first in more than three years and likely one of many to occur this year.

In addition, markets expect the Fed to lay out a plan at its May meeting for running down some of the nearly $9 trillion in assets, primarily Treasurys and mortgage-backed securities, on its balance sheet. According to Brainard’s Tuesday comments, that process will be swift.

“The [FOMC] will continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting,” she said. “Given that the recovery has been considerably stronger and faster than in the previous cycle, I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017-19.”

Back then, the Fed allowed $50 billion in proceeds to roll off each month from maturing bonds and reinvested the rest. Market expectations are that the pace could double this time around.

The moves are in response to inflation running at its fastest pace in 40 years, well above the Fed’s 2% target. Market expectations are for rate increases at each of the remaining six meetings this year, possibly totaling 2.5 percentage points overall.

Jamie Dimon, CEO and chairman of the biggest U.S. bank by assets, pointed to a potentially unprecedented combination of risks facing the country in his annual shareholder letter.

Three forces are likely to shape the world over the next several decades: a U.S. economy rebounding from the Covid pandemic; high inflation that will usher in an era of rising rates, and Russia’s invasion of Ukraine and the resulting humanitarian crisis now underway, according to Dimon.

“Each of these three factors mentioned above is unique in its own right: The dramatic stimulus-fueled recovery from the COVID-19 pandemic, the likely need for rapidly raising rates and the required reversal of QE, and the war in Ukraine and the sanctions on Russia,” Dimon wrote.

“They present completely different circumstances than what we’ve experienced in the past – and their confluence may dramatically increase the risks ahead,” he wrote. “While it is possible, and hopeful, that all of these events will have peaceful resolutions, we should prepare for the potential negative outcomes.”

Dimon’s letter, read widely in business circles because of the JPMorgan CEO’s status as his industry’s most prominent spokesman, took a more downcast tone from his missive just last year. While he wrote extensively about challenges facing the country, including economic inequality and political dysfunction, that letter broadcast his belief that the U.S. was in the midst of a boom that could “easily” run into 2023.

Now, however, the outbreak of the biggest European conflict since World War II has changed things, roiling markets, realigning alliances and restructuring global trade patterns, he wrote. That introduces both risks and opportunities for the U.S. and other democracies, according to Dimon.

“The war in Ukraine and the sanctions on Russia, at a minimum, will slow the global economy — and it could easily get worse,” Dimon wrote. That’s because of the uncertainty about how the conflict will conclude and its impact on supply chains, especially for those involving energy supplies.

Dimon added that for JPMorgan, management isn’t worried about its direct exposure to Russia, though the bank could “still lose about $1 billion over time.”

Here are excerpts from Dimon’s letter.

“We expect the fallout from the war and resulting sanctions to reduce Russia’s GDP by 12.5% by midyear (a decline worse than the 10% drop after the 1998 default). Our economists currently think that the euro area, highly dependent on Russia for oil and gas, will see GDP growth of roughly 2% in 2022, instead of the elevated 4.5% pace we had expected just six weeks ago. By contrast, they expect the U.S. economy to advance roughly 2.5% versus a previously estimated 3%. But I caution that these estimates are based upon a fairly static view of the war in Ukraine and the sanctions now in place.”

“Many more sanctions could be added — which could dramatically, and unpredictably, increase their effect. Along with the unpredictability of war itself and the uncertainty surrounding global commodity supply chains, this makes for a potentially explosive situation. I speak later about the precarious nature of the global energy supply, but for now, simply, that supply is easy to disrupt.”

“America must be ready for the possibility of an extended war in Ukraine with unpredictable outcomes. … We must look at this as a wake-up call. We need to pursue short-term and long-term strategies with the goal of not only solving the current crisis but also maintaining the long-term unity of the newly strengthened democratic alliances. We need to make this a permanent, long-lasting stand for democratic ideals and against all forms of evil.”

“Russian aggression is having another dramatic and important result: It is coalescing the democratic, Western world — across Europe and the North Atlantic Treaty Organization (NATO) countries to Australia, Japan and Korea. […] The outcome of these two issues will transcend Russia and likely will affect geopolitics for decades, potentially leading to both a realignment of alliances and a restructuring of global trade.  How the West comports itself, and whether the West can maintain its unity, will likely determine the future global order and shape America’s (and its allies’) important relationship with China.”

“It also is clear that trade and supply chains, where they affect matters of national security, need to be restructured. You simply cannot rely on countries with different strategic interests for critical goods and services. Such reorganization does not need to be a disaster or decoupling. With thoughtful analysis and execution, it should be rational and orderly. This is in everyone’s best interest.”

“For any products or materials that are essential for national security (think rare earths, 5G and semiconductors), the U.S. supply chain must either be domestic or open only to completely friendly allies. We cannot and should not ever be reliant on processes that can and will be used against us, especially when we are most vulnerable. For similar national security reasons, activities (including investment activities) that help create a national security risk — i.e., sharing critical technology with potential adversaries — should be restricted.”

“This restructuring will likely take place over time and does not need to be extraordinarily disruptive. There will be winners and losers — some of the main beneficiaries will be Brazil, Canada, Mexico and friendly Southeast Asian nations. Along with reconfiguring our supply chains, we must create new trading systems with our allies. As mentioned above, my preference would be to rejoin the TPP — it is the best geostrategic and trade arrangement possible with allied nations.”

“The Federal Reserve and the government did the right thing by taking bold dramatic actions following the misfortune unleashed by the pandemic. In hindsight, it worked. But also in hindsight, the medicine (fiscal spending and QE) was probably too much and lasted too long.”

“I do not envy the Fed for what it must do next: The stronger the recovery, the higher the rates that follow (I believe that this could be significantly higher than the markets expect) and the stronger the quantitative tightening (QT). If the Fed gets it just right, we can have years of growth, and inflation will eventually start to recede. In any event, this process will cause lots of consternation and very volatile markets. The Fed should not worry about volatile markets unless they affect the actual economy. A strong economy trumps market volatility.”

“One thing the Fed should do, and seems to have done, is to exempt themselves — give themselves ultimate flexibility — from the pattern of raising rates by only 25 basis points and doing so on a regular schedule. And while they may announce how they intend to reduce the Fed balance sheet, they should be free to change this plan on a moment’s notice in order to deal with actual events in the economy and the markets. A Fed that reacts strongly to data and events in real time will ultimately create more confidence. In any case, rates will need to go up substantially. The Fed has a hard job to do so let’s all wish them the best.”

“This year, we announced that the expenses related to investments would increase from $11.5 billion to $15 billion. I am going to try to describe the ‘incremental investments’ of $3.5 billion, though I can’t review them all (and for competitive reasons I wouldn’t). But we hope a few examples will give you comfort in our decision-making process.

Some investments have a fairly predictable time to cash flow positive and a good and predictable return on investment (ROI) however you measure it. These investments include branches and bankers, around the world, across all our businesses. They also include certain marketing expenses, which have a known and quantifiable return. This category combined will add $1 billion to our expenses in 2022.

“Over the last 18 months, we spent nearly $5 billion on acquisitions, which will increase ‘incremental investment’ expenses by approximately $700 million in 2022. We expect most of these acquisitions to produce positive returns and strong earnings within a few years, fully justifying their cost. In a few cases, these acquisitions earn money — plus, we believe, help stave off erosion in other parts of our business.”

“Our international consumer expansion is an investment of a different nature. We believe the digital world gives us an opportunity to build a consumer bank outside the United States that, over time, can become very competitive — an option that does not exist in the physical world. We start with several advantages that we believe will get stronger over time. … We have the talent and know-how to deliver these through cutting-edge technology, allowing us to harness the full range of these capabilities from all our businesses. We can apply what we have learned in our leading U.S. franchise and vice versa. We may be wrong on this one, but I like our hand.”

“Despite the pandemic and talent retention challenges, we continue to boost our representation among women and people of color. … More women were promoted to the position of managing director in 2021 than ever before; similarly, a record number of women were promoted to executive director. By year’s end, based on employees that self-identified, women represented 49% of the firm’s total workforce. Overall Hispanic representation was 20%, Asian representation grew to 17% and Black representation increased to 14%.”

Amid soaring inflation and worries about a looming recession, the U.S. economy added slightly fewer jobs than expected in March as the labor market grew increasingly tighter.

Nonfarm payrolls expanded by 431,000 for the month, while the unemployment rate was 3.6%, the Bureau of Labor Statistics reported Friday. Economists surveyed by Dow Jones had been looking for 490,000 on payrolls and 3.7% for the jobless level.

An alternative measure of unemployment, which includes discouraged workers and those holding part-time jobs for economic reasons fell to a seasonally adjusted 6.9%, down 0.3 percentage point from the previous month.

The moves in the jobless metrics came as the labor force participation rate increased one-tenth of a percentage point to 62.4%, to within 1 point of its pre-pandemic level in February 2020. The labor force grew by 418,000 workers and is now within 174,000 of the pre-pandemic state.

Average hourly earnings, a closely watched inflation metric, increased 0.4% on the month, in line with expectations. On a 12-month basis, pay rose nearly 5.6%, just above the estimate. The average work week, which figures into productivity, edged down by 0.1 hour to 34.6 hours.

“All in all, nothing shocking about this report. There was nothing that was really surprising,” said Simona Mocuta, chief economist at State Street Global Advisors. “Even if this report came in at zero, I would still say this is a very healthy labor market.”

As has been the case through much of the Covid pandemic era, leisure and hospitality led job creation with a gain of 112,000.

Professional and business services contributed 102,000 to the total, while retail was up 49,000 and manufacturing added 38,000. Other sectors reporting gains included social assistance (25,000), construction (19,000) and financial activities (16,000).

The survey of households painted an even more optimistic picture, showing a total employment gain of 736,000. That brought the total employment level within 408,000 of where it stood pre-pandemic.

Revisions from prior months also were strong. January’s total rose 23,000 to 504,000, while February was revised up to 750,000 compared with the initial count of 678,000. For the first quarter, job growth totaled 1.685 million, an average of nearly 562,000.

Among individual groups, the Black unemployment rate fell 0.4 percentage point to 6.2%, while the rate for Asians declined to 2.8% and to 4.2% for Hispanics.

The numbers come with the economy at a critical juncture in its pandemic recovery phase. Though hiring on the top line has been strong, there remains a gap of about 5 million more job openings than available workers.

Growth as measured by gross domestic product is expected to be minimal in the first quarter. An inventory rebuild last year that helped propel the biggest yearly gain since 1984 is tapering, and multiple factors kept advancements in check to start 2022.

The biggest attention-getter has been inflation, running at its fastest pace since the early 1980s and helping constrain consumer spending as wage gains haven’t been able to keep up with prices. At the same time, the war in Ukraine has dampened sentiment and added to supply chain issues. And rising interest rates are showing signs of slowing the red-hot housing market.

To combat inflation, the Federal Reserve is planning a series of interest rate hikes that further would slow growth.

Markets now are anticipating rate increases at each of the six remaining Fed meetings this year, likely starting with a half percentage-point move in May and continuing to total 2.5 percentage points before 2022 comes to a close.

There was little in Friday’s report that would alter that outlook.

“The wage picture is critical,” said Mocuta, the State Street economist. “The report doesn’t really change the short-term trajectory, the idea that we’re going to get a few hikes in a row. If indeed you get confirmation that the wage growth is slowing at the margins, that maybe allows the Fed to reassess.”

The hospitality industry has been among the hardest hit during the pandemic. While hiring has continued at restaurants, bars, hotels and the like, challenges remain.

Some 90,000 establishments closed in 2021, while sales were off about 7.5% from pre-pandemic levels, according to the National Restaurant Association. The industry remains about 1.5 million jobs below the February 2020 level, with an unemployment rate that nevertheless tumbled to 5.9% in March, down 0.7 percentage point from the previous month.

Dirk Izzo, president and general manager of NCR Hospitality, said the industry is using a variety of tactics to survive. Technology has been a big factor in the pandemic world, with companies coping with a lack of workers by turning to hand-held devices, QR-coded menus and other implements to improve customer service.

“We’re saying that they’re having a really hard time staffing fully both the front of the house and the back of the house,” Izzo said. “They’ve actually taken tables out of the restaurants because they can’t find the staff.”

Establishments that have run out of government subsidies are shutting down, while those remaining open are having to raise prices to combat inflation.

Nevertheless, he said there’s an air of optimism that with the pandemic easing and people returning to their regular behaviors, the industry can rebound.

“I think people are going to come back from this stronger than before,” Izzo said. “They’re going to have to put more technology in. I do think it’s going to be a positive for the industry. It’s just going to be a bumpy road.”

The rate for the most common kind of mortgage just surged again.

The average rate on the 30-year fixed mortgage shot significantly higher Friday, rising 24 basis points to 4.95%, according to Mortgage News Daily. It is now 164 basis points higher than it was one year ago.

“That’s the second time this week, and it puts this week on par with the worst week from the 2013 taper tantrum — a record we didn’t see being legitimately challenged a few days ago,” said Matthew Graham, COO of Mortgage News Daily.

On Tuesday, the rate had hit 4.72%, a 26-basis-point jump from March 18. The quicker-than-expected rise in rates has weighed on demand for mortgages and refinancing loans.

The rate surged as the yield on the U.S. 10-year Treasury also took off. Mortgage rates follow that yield loosely, but not entirely. Mortgage rates are also influenced by demand for mortgage-backed bonds. The Federal Reserve is scaling back its holdings of these assets and is also hiking interest rates.

It couldn’t come at a worse time, as the all-important spring housing market gets underway. Potential buyers are already facing extraordinarily tight supply and sky-high prices. With both rates and prices considerably higher, the median mortgage payment is now more than 20% higher than it was a year ago.

Buyers are also facing inflation on everything else in their budgets, which exacerbates the affordability issues. Rents are also surging higher at a record rate, causing more potential buyers to be unable to put aside money for a down payment. In addition, as rates rise, some buyers will no longer qualify for a mortgage. Lenders have been much more strict about how much debt a borrower may take on in relation to income.

Economists are already beginning to revise their sales figures lower for the year. Lawrence Yun, chief economist for the National Association of Realtors, said Tuesday that he expects the rate to hover around 4.5% this year, after previously predicting it would stay at 4%.

NAR’s latest official prediction is for sales to drop 3% in 2022, but Yun now says he expects they will fall 6% to 8%. NAR has not officially updated its forecast.

In a grim sign for the housing market’s busiest season, pending home sales, which measure signed contracts on existing homes, fell 4.1% in February compared with January, according to the National Association of Realtors.

Sales were down 5.4% compared with February 2021. Analysts were expecting a slight gain. This is the fourth straight month of declines in pending sales, which are an indicator of future closings, one to two months out.

Since this count is based on signed contracts in February, when mortgage rates really started to take off, it is a strong indicator of how the market is reacting to the new rate environment, especially as it is entering the crucial spring season.

Rates began rising in January and continued sharply higher in February. The average rate on the 30-year fixed mortgage is now more than a full percentage point higher than it was one year ago.

Regionally, pending sales rose 1.9% month to month in the Northeast but were down 9.2% from a year ago. In the Midwest, sales decreased 6.0% for the month and were down 5.2% from February 2021. In the South, sales fell 4.4% monthly and 4.3% annually, and in the West they were down 5.4% for the month and 5.3% from a year ago.

The jump in mortgage rates could not come at a worse time, as spring is historically the busiest season for the housing market.

“Most of my buyers are adjusting their target to buy the home they can afford at the higher rates,” said Paul Legere, a buyer’s agent with Joel Nelson Group in Washington, D.C. “There has been a pronounced sense of urgency to lock in a mortgage rate and get into a property. In my market at least, buyers are not electing to rent as an alternative.”

Today’s potential buyers are facing an expensive market. The median monthly payment on a new mortgage is now taking up a much larger share of a typical consumer’s income. It jumped 8.3% in February compared with January, according to a new index from the Mortgage Bankers Association. It is nearly 22% higher than it was in February 2021. For borrowers on the lower end of the market, that monthly payment is up nearly 10% month to month.

“The 30-year fixed-rate mortgage spiked 73 basis points from December 2021 through February 2022. Together with increased loan application amounts, a mortgage applicant’s median principal and interest payment in February jumped $127 from January and $337 from one year ago,” said Edward Seiler, MBA’s associate vice president of housing economics.

Buyers continue to face a tight and pricey market. Now they have to factor in inflation in other parts of their budgets, as well. List prices for homes reaccelerated after a brief reprieve in the fall of last year, according to Realtor.com.

“As we move into the spring season, markets remain clearly tilted in sellers’ favor,” said George Ratiu, senior economist at Realtor.com. “However, with mortgage rates moving toward 5%, we are seeing early signs of a shift in housing fundamentals, as many people looking for a home have hit a ceiling on their ability to afford a home.”

Just 60 years ago, the U.S. and the Soviet Union were at the height of a Cold War that nearly resulted in nuclear warfare. Today, experts say, the U.S. and its old foe, now Russia, are headed into another one. But it won’t be the same.

“I think the second Cold War has already started,” said Jason Schenker, president of Prestige Economics.

Angela Stent, senior advisor for Georgetown University’s Center for Eurasian, Russian and East European Studies, said, “I think that we are definitely headed into a 21st century version of the Cold War, but it’s going to be different from the Cold War that existed between 1949 and 1989.”

The unprecedented economic sanctions imposed against Russia following its invasion of Ukraine hint that the next Cold War will be mainly fought on the economic front.

“It’s hard to imagine a shooting war breaking out between Russia and the U.S.,” said Alan Gin, associate professor of economics at the University of San Diego. “I think that these sanctions will [continue] and then Russia will seek out other world partners, maybe like China and maybe some of the OPEC countries, and I think a lot of the battles then will be on the economic front.”

The crisis in Ukraine has already posed a new challenge to a market that has been recovering from the uncertainties of the pandemic.

“The market doesn’t like uncertainty, and this casts a lot of uncertainty in terms of the world economy,” said Gin.

In the longer term, the health of the market depends on where the crisis in Ukraine is headed next.

“If we were to see Kyiv fall or Ukraine fall, then we’d see equity markets take very big hits,” said Schenker. “If tactical nukes were to be deployed, the downside is immeasurable.”

Watch the video to find out more about how a new Cold War could impact the U.S. economy.