The Morning: We sort through the economic muddle

Plus, Alejandro Mayorkas, a New York election and Valentine's Day.

View in browser|nytimes.com Continue reading the main story February 14, 2024 By David Leonhardt Good morning. We're covering the unsettling inflation report — as well as Alejandro Mayorkas, a New York election and Valentine's Day. Shoppers in New York. Amir Hamja/The New York Times Four phases The economy is probably headed toward a recession. No, it's actually booming again. Inflation is plummeting. No, it has started rising again. If you find the cacophony of economic indicators to be confusing, don't feel bad. It is confusing. Some numbers point in one direction, while others point in the opposite. Partisans from both political parties have an interest in promoting one type of news and downplaying the other. Yesterday's inflation report added to the muddle. Inflation — a major concern for many families and already a 2024 campaign issue — has been falling for the past year and half. Americans' economic mood has improved slightly as a result. But the numbers released yesterday showed inflation to be higher than forecasters had expected. In response, the S&P 500 index fell 1.4 percent, its second-biggest daily decline this year. In today's newsletter, I'll give you a framework for thinking about the state of the U.S. economy by describing the four main phases of the past several years. I can't tell you what will happen next, but I do think the picture is simpler than the swirl of economic indicators sometimes suggests. 1. The pre-Covid boom The American economy has been disappointing for much of the past half-century. Income and wealth growth has been slow for most families, and inequality has soared. Perhaps the starkest sign of the problems: Life expectancy in the U.S. is now lower than in any other high-income country, and it isn't especially close. Still, there have been a few brief periods when the economy has boomed. One of them began late in Barack Obama's presidency and continued during Donald Trump's term. The country finally emerged from its hangover after the housing crash, as businesses expanded and consumers spent more. The unemployment rate fell below 5 percent in 2016 and below 4 percent in 2018. The tight labor market — combined with increases in the minimum wage in many states — raised income for all income groups. Source: Bureau of Labor Statistics | By The New York Times By early 2020, the U.S. economy's short-term performance was as healthy as it had been since the dot-com boom two decades earlier. 2. The Covid crash Then the pandemic arrived. People stayed home and cut back on spending. Businesses laid off workers, and the unemployment rate exceeded 10 percent. Experts understandably worried that the economy could fall into a vicious cycle, in which companies went out of business, families couldn't make loan payments and banks went under. Many economists believed that the federal government had been too timid with stimulus after the early-2000s housing crash. During the pandemic, members of Congress vowed not to repeat the mistake and passed huge stimulus bills, which both Trump and President Biden signed. 3. The too-hot recovery Those stimulus programs worked — a bit too well. For all the misery that Covid caused, it ended up being less economically destructive than the housing crash. The unemployment surge was temporary. And thanks to the stimulus, the typical American family's finances improved during the pandemic — a very different situation than the aftermath of the housing crash. In effect, Washington overlearned the lesson of the previous crisis. It pumped so much money into the economy during the pandemic that families were able to go on a spending spree. Businesses, in response, raised prices. The pandemic's supply-chain disruptions played a big role, too. This combination — high demand and low supply — led to sharp price increases. Source: Bureau of Labor Statistics | By The New York Times 4. The healthier recovery Once inflation rises, it can remain high for years (as it did from the late 1960s to the early 1980s). Workers demand bigger raises, and businesses, facing higher costs, raise prices even more. The dynamic is reinforcing. When inflation soared in 2021, some economists thought the pattern was repeating. They predicted that only a deep recession would bring a return to normalcy. These dark predictions turned out to be wrong, though. Instead, inflation started falling rapidly in 2022. The end of the stimulus programs, combined with the end of most supply-chain problems, was enough to reduce price increases. For the past several months, the economy has again looked healthy, with both employment and wages growing nicely. Yesterday's report doesn't change that: Annual inflation fell to 3.1 percent in January, from 3.4 percent in December. It's just that forecasters had expected it to fall more than it did. Why didn't it? Maybe last month's number was just a statistical blip. But maybe it is a sign that the economy has again become too strong for inflation to keep falling. "Hiring picked up in January, wage growth was solid, and consumers continue to spend," as my colleague Jeanna Smialek explains. "Some analysts have suggested that in an economy this hot, wrestling inflation the rest of the way to normal will prove more difficult than the progress so far." Economists generally consider the ideal inflation rate to be around 2 percent. By almost any measure, the economy is in better shape today than most forecasters predicted even a year ago. Still, it hasn't fully recovered from the pandemic. Related: The American economy has seen a burst of productivity recently. Read more about economists' views on whether it will continue. Continue reading the main story ADVERTISEMENT THE LATEST NEWS Alejandro Mayorkas Alejandro Mayorkas Kenny Holston/The New York Times House Republicans impeached Alejandro Mayorkas, Biden's homeland security secretary, despite no evidence that he had committed impeachable offenses. He is the first sitting cabinet member to be impeached. Read what could happen next. The number of migrants illegally crossing into the U.S. from Mexico has dropped by half in the past month. More on Politics Tom Suozzi Anna Watts for The New York Times Tom Suozzi, a Democratic former congressman, won a special House election to replace George Santos in a Queens and Long Island district. Suozzi's strategy offers a playbook for other Democrats. Biden criticized Trump for suggesting that he would let Russia attack NATO countries that don't spend enough on defense. "It's dumb, it's shameful, it's dangerous, it's un-American," Biden said. Biden urged Speaker Mike Johnson to let the House vote on a bill to aid Ukraine and Israel. If Johnson refuses, House members may use a procedural trick — a discharge petition — to go around him. Defense Secretary Lloyd Austin has been released from hospital after his admission for a bladder issue. A diamond ring and a "James Bond" phone: Court filings revealed new details in Senator Robert Menendez's bribery case. Top Senate Republicans endorsed Kari Lake for Senate in Arizona. Lake refused to admit her loss in the state's 2022 governor's race. Israel-Hamas War Arab governments are privately discussing a new vision for governing Gaza, according to a senior adviser. Their idea includes an independent Palestinian leader and an Arab peacekeeping force. Negotiations in Cairo over a pause in fighting in Gaza have been extended by three days, according to Egyptian officials. Hezbollah fired missiles into northern Israel, injuring at least two people. Two Michigan students have opposing views on the war. Read about their civil, if awkward, conversation on campus. Asia Ho Chi Minh City, Vietnam. Linh Pham for The New York Times After a crackdown on drunken driving, motorbikes are filling impound lots in Vietnam. A South Korean court found three former police officers guilty of destroying evidence tied to a Halloween crowd crush that killed nearly 160 people in Seoul in 2022. Two major parties in Pakistan agreed to form a coalition government. They withheld power from candidates aligned with former Prime Minister Imran Khan, even though his allies recently won the most seats. Myanmar's junta said it would impose a military draft to replenish forces that have been depleted fighting pro-democracy rebels. China, faced with declining foreign investment, is trying to soften its image abroad. One Communist Party official has played a prominent role. Other Big Stories The East Coast is sinking, research has found. A major culprit: overpumping of groundwater. Better memory: OpenAI is releasing a new version of ChatGPT. It will store what users write and apply the information to future chats. A vehicle crashed into a hospital emergency room in Austin, Texas, killing at least one person and injuring five others. Opinions As artificial intelligence takes over technical tasks, the human side of work — collaboration, empathy, communication — will become more valuable, Aneesh Raman and Maria Flynn argue. Don't buy flowers for your valentine. There are more environmentally friendly ways to show love, Margaret Renkl says. Here are columns by Ross Douthat on inflation and Thomas Edsall on isolationism. Discover more of the insight you value in The Morning. The Times is filled with information and inspiration every day. So gain unlimited access to everything we offer — and save with this introductory offer. MORNING READS Photo Illustration by Shirley Yu for The New York Times Anti-Valentine's Day: Single, anti-consumerist or just not a romantic? There's a market for you, too. Small acts: Times readers shared the little things they do to show affection all year long. Your brain on love: Roses are red, violets are blue. This is how romance can mess with you. Modern Love podcast: Hear how a couple navigated getting "un-married" while staying together. New gig: Grover, the furry blue Muppet from "Sesame Street," is becoming a reporter. Journalists aren't optimistic. Lives Lived: Bob Moore leveraged his grandfatherly image to turn the artisanal grain company Bob's Red Mill into a $100 million-a-year business. He died at 94. SPORTS N.F.L. draft: Read about the top 100 prospects in this year's class. N.B.A.: The Knicks are said to be filing a protest to dispute their 105-103 loss to the Rockets. No. 32: The Orlando Magic retired Shaquille O'Neal's jersey, making him the second player in N.B.A. history to have a jersey retired by three different franchises. Continue reading the main story ADVERTISEMENT ARTS AND IDEAS Taylor Tomlinson Chona Kasinger for The New York Times The closer: When the comedian Taylor Tomlinson began her tour, she was happy with everything in her set except for her closing joke. So, over months of live shows, she refined it, adding punchlines and tweaking details. A new story by the Times comedy critic Jason Zinoman follows her through the process, showing how small changes led to big laughs. More on culture Meghan Markle has found a new podcast partner. Markle and Prince Harry's deal with Spotify ended after they delivered just one show, Variety reports. The creators of "Six," about the six wives of Henry VIII, announced that their second musical, "Why Am I So Single?," will premiere in London in August. Paramount, which owns Nickelodeon and MTV, is laying off hundreds of employees as it moves away from traditional television. Late-night hosts discussed Trump recommending Lara Trump for co-chair of the R.N.C. THE MORNING RECOMMENDS … Linda Xiao for The New York Times Combine just a few ingredients to make a simple, romantic spaghetti carbonara. Listen to love songs about crushes. Shop more sustainably. Clean your blankets. GAMES Here is today's Spelling Bee. Yesterday's pangrams were applicable and clippable. Celebrate Valentine's Day with this month's bonus crossword puzzle, which has a rom-com theme. And here are today's Mini Crossword, Wordle, Sudoku and Connections. Thanks for spending part of your morning with The Times. See you tomorrow. — David Sign up here to get this newsletter in your inbox. Reach our team at themorning@nytimes.com. Continue reading the main story Editor: David Leonhardt Deputy Editor: Adam B. Kushner News Editor: Tom Wright-Piersanti News Staff: Desiree Ibekwe, Lauren Jackson, Sean Kawasaki-Culligan, Brent Lewis, German Lopez, Ian Prasad Philbrick, Ashley Wu News Assistant: Lyna Bentahar Saturday Writer: Melissa Kirsch Need help? Review our newsletter help page or contact us for assistance. You received this email because you signed up for the Morning newsletter from The New York Times, or as part of your New York Times account. To stop receiving The Morning, unsubscribe. To opt out of other promotional emails from The Times, including those regarding The Athletic, manage your email settings. To opt out of updates and offers sent from The Athletic, submit a request. Subscribe to The TimesGet The New York Times app Connect with us on: Change Your EmailPrivacy PolicyContact UsCalifornia Notices The New York Times Company. 620 Eighth Avenue New York, NY 10018