Policy Backgrounders

The Weekly News Round-Up: Developments on the Economy (February 24, 2023)

February 24, 2023

CED & ESF ECONOMIC & POLICY BRIEF

The Weekly Round-Up:

Developments on the Economy

February 24, 2023

1. Q4 2022 GDP Growth Revised Down Slightly to 2.7 Percent

2. FOMC Minutes Show Fed Likely to Engage in Additional Hikes

3. Initial Unemployment Claims Decline Slightly

4. DHS, Justice Propose New Rule on Lawful Immigration Pathways

5. Republican Governors Promote Immigration

6. EPA Regulatory Agenda

7. Labor Department Regulatory Agenda

8. DOD/GSA Propose New Security Regulations

9. Republican States Sue on ESG Pension Rule

10. School Pulse Panel Shows Recovery Efforts

1. Q4 2022 GDP GROWTH REVISED DOWN SLIGHTLY TO 2.7 PERCENT

Real gross domestic product (GDP) increased at an annual rate of 2.7 percent in the fourth quarter of 2022, according to a revised estimate released Thursday by the Bureau of Economic Analysis. This was lower than the third quarter’s 3.2 percent. The updated estimates of GDP had less consumer spending than the advance estimate and more imports, meaning there was less domestic production than the advance estimate had shown. This was partially offset by stronger nonresidential fixed investment than in the advance estimate. Overall, the fourth quarter of 2022 was characterized by strong real spending on services, which increased at a 2.4 percent annual rate, but weak spending on goods, which decreased at a 0.5 percent rate, for a 1.4 percent annualized increase in consumption overall. Fixed investment declined 4.6 percent, driven by a massive pullback in housing investment (-25.9 percent) as mortgage rates increased. Government expenditures increased (3.6 percent). The trade deficit fell in the final quarter of 2022, as both exports and imports declined.

2. FOMC MINUTES SHOW FED LIKELY TO ENGAGE IN ADDITIONAL HIKES

Minutes of the January 31-February 1 meeting of the Federal Open Market Committee published Wednesday showed that “almost all” participants supported the Federal Reserve’s 25 basis point hike, but “a few” favored a larger, 50-point hike, noting that “a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance.” Additionally, “a number of participants observed that a policy stance that proved to be insufficiently restrictive could halt recent progress in moderating inflationary pressures.”

Overall, the minutes suggest that the Fed, which usually moves rates in 25 basis point increments, was closer to a 50-point hike than to leaving rates unchanged. In the period since the meeting, the January Consumer Price Index came in at a relatively high 0.5 percent month-over-month rate of growth, while advance retail sales data showed 3.0 percent growth (which may have resulted in part from seasonal adjustments and warm weather). These data points, which indicate relatively high levels of aggregate demand, are likely to continue driving the view some FOMC participants favor that the Fed should continue its rate increases at a higher pace. Most Fed officials had projected in December the final federal funds rate at the end of 2023 would be 5.1%, which would imply two more 25-point raises. This is also the terminal rate currently projected in the economic forecast by The Conference Board.

3. INITIAL UNEMPLOYMENT CLAIMS DECLINE SLIGHTLY

The Department of Labor reported Thursday that initial claims for unemployment insurance, a weekly indicator of labor market health, were 192,000 for the week ending February 18, a decrease of 3,000 from the previous week’s revised level of 195,000. The 4-week moving average was 191,250, just off its lowest mark since May 2022. This level of claims is low by historical standards and well below the highs of 261,000 in July, reflecting continued labor market strength even as some leading economic indicators tip into negative territory. The latest economic forecast from The Conference Board shows the unemployment rate rising to 4.4 percent, well above its current level of 3.4 percent, by the fourth quarter of 2023.

4.  DHS, JUSTICE PROPOSE NEW RULE ON LAWFUL IMMIGRATION PATHWAYS

The Departments of Homeland Security (DHS) and Justice proposed a new rule planning for a “potential surge of migration” at the southwest border once the COVID-19 Public Health Emergency ends and the Centers for Disease Control terminates its related public health order under Title 42 of the Public Health Act that has permitted rapid deportation of unlawful migrants. The rule is designed to “encourage migrant” to use only “lawful, safe, and orderly pathways” or seek asylum in third countries, “reducing reliance on human smuggling networks that exploit migrants for financial gain.” To this end, it proposes a “rebuttable presumption of asylum ineligibility” if migrants do not use lawful points of entry or seek asylum in other countries “through which they travel.” The Departments are concerned about a rise in unauthorized migrants “to a level that risks undermining the Departments' continued ability to safely, effectively, and humanely enforce and administer U.S. immigration law, including the asylum system [.]”

More specifically, the Departments seek to address a “growing backlog” of immigration cases, under which “those deserving of protection may have to wait years for their claims to be granted, while individuals who are ultimately found not to merit protection may spend years in the United States before being issued a final order of removal.”

Instead, the Departments want to focus asylum claims at lawful border crossings. They cite the Administration’s processes in the Uniting for Ukraine initiative and policy on Venezuelans, Cubans, Haitians, and Nicaraguans, which offer a way for citizens of those countries to seek asylum with removal to Mexico for those who do not follow these processes. These procedures have led to sharp declines in the number of illegal border crossings. The proposed rule states that Mexico’s decision to accept return of those migrants “was predicated, in primary part,” on adoption of this policy. Comments on the proposed rule are due March 27; presumably a final rule would be adopted before the end of the COVID-19 Public Health Emergency in May.

5.  REPUBLICAN GOVERNORS PROMOTE IMMIGRATION

Two Republican Governors, Eric Holcomb of Indiana and Spencer Cox of Utah, wrote an opinion piece in the Washington Post calling for the states to be given authority to sponsor immigrants under similar authority to that employers and universities currently have, “up to a limit set by Congress, for the specific sorts of jobs they need to fill.” (Because the Constitution gives control of immigration solely to the Federal government, this change would require an Act of Congress.) They pointed out the large number of open jobs in their states and noted that the current workforce “won’t be enough to fill all of those vacancies. We also need immigrants who are ready to work and help build strong communities.” Citing “[r]apidly declining birthrates and accelerating retirements” that are expanding job gaps to “crisis proportions,” the governors argue that while “[m]any of these jobs require high-level skills and entrepreneurship . . . states are also awash in unfilled entry-level, low-skill roles — essential in agriculture, health care and the service industries.” Therefore, “we call on Congress to end its two-decade standoff on setting immigration policy -- one of its most basic duties. . . .  As it is, the standstill on immigration hobbles both parties and, more seriously, endangers America’s long-term well-being.”

6. EPA REGULATORY AGENDA

The Environmental Protection Agency published its semiannual regulatory agenda. Notable regulations likely to be published by November include a regulation on performance standards and emission guidelines for crude oil and natural gas facilities (which will likely propose sharp reductions in methane emissions from oil and gas production) and revisions to air emissions reporting requirements. The regulatory agenda outlines an agency’s plans for the next several months without indicating the content of the proposed regulation, which is issued only at publication in the Federal Register.

7. LABOR DEPARTMENT REGULATORY AGENDA

The Labor Department also published its agenda of forthcoming regulations. Two regulations concern exemptions from overtime classifications and classifying workers as either employees or independent contractors -- two very controversial issues. The Department is also planning revisions to regulations on H-2B visas for temporary non-agricultural workers and on temporary agricultural employment. The Occupational Health and Safety Administration is also planning a revised rule on chemical accidents; it is possible this could be accelerated following the Ohio derailment involving chemical leaks.

8. DOD/GSA PROPOSE NEW SECURITY REGULATIONS

In their semiannual regulatory agenda, the Department of Defense and General Services Administration proposed several new rules to heighten information security. They intend to implement a component of the Federal Acquisition Supply Chain Security Act of 2018, which gives agencies authority to determine and mitigate supply chain risks in procurements involving controlled unclassified information, information technology, embedded information technology, and telecommunications. They also plan two actions pertaining to Executive Order 14028 from May 2021 on cybersecurity: that contractors afflicted by cyber incidents increase information sharing with the Federal government (a step recommended in CED’s Solutions Brief Securing Cyberspace in an Era of Evolving Threats), and to standardize cybersecurity contractual requirements across federal agencies for unclassified information. Finally, they plan a rule for exclusion orders under the SECURE Technology Act, a law designed to facilitate the removal of potentially threatening software from government systems and processes.

9. REPUBLICAN STATES SUE ON ESG PENSION RULE

Twenty-five states with Republican Governors and Attorneys General filed suit asking a Federal court in Amarillo, Texas to block a new rule permitting retirement plans to consider environmental, social, and governance factors in determining investments made under the plans, which reversed a previous rule from the Trump Administration. The plaintiffs claim that the rule violates the Employee Retirement Income Security Act (ERISA) of 1974 by permitting consideration of factors other than financial factors in making investments. The Administration argues it is legitimate for the plans to consider climate risks in long-term investments. Utah Attorney General Sean Reyes is the lead plaintiff; plaintiffs filed in Texas as the home of an energy company joining the suit; the Administration is seeking a change of venue.

10. SCHOOL PULSE PANEL SHOWS RECOVERY EFFORTS

About half of public school students began the 2022-23 school year behind grade level in at least one academic subject based on estimates from public school leaders captured in the National Center for Education Statistics' School Pulse Panel. The School Pulse Panel collects information from a national sample of elementary, middle, high, and combined-grade public schools on topics such as learning recovery, tutoring offerings, learning mode offerings, and the prevalence of quarantine. The panel's most recent findings highlight the myriad ways public schools are assessing academic needs and delivering interventions. A majority of public schools, 83 percent, provide some form of tutoring -- an approach endorsed nationally by leaders, researchers, experts, and funders alike. In July 2022, the President further encouraged tutoring as a strategy by launching the National Partnership for Student Success to provide 250,000 tutors and mentors. The School Pulse Panel also reveals the challenge public schools continue to face to move beyond the physical limitations of the pandemic, with 36 percent of schools reporting students in quarantine due to COVID-19, and 27 percent with staff in quarantine as of December 2022.