Policy Backgrounders

The Weekly Round-Up: Developments on the Economy (September 9, 2022)

September 12, 2022

CED & ESF ECONOMIC and POLICY BRIEF

The Weekly Round-Up:

Developments on the Economy

September 9, 2022

This week CEOs and financial markets received more data to track the progress of the US economy in 3Q and continued hawkish soundings from the Fed.

Initial jobless claims continued to improve in the week ending September 3 with the four-week moving average edging down for a second consecutive period. This suggests that while domestic demand may be slowing – a key metric of recession, the labor market remains robust. Indeed, job vacancies in the recent readings remain near all-time highs suggesting that firms still are challenged by labor shortages and may be more willing to hold onto workers.

Meanwhile, the Commerce Department reported a material narrowing in the US trade deficit in July as imports fell by more than exports. The data may suggest that US consumers and businesses are purchasing fewer goods from abroad or that the inventory restoking is more complete. The reasons notwithstanding, the positive net exports data portends positively for 3Q real GDP growth, which we anticipate will be close to zero following two quarters of decline.

Separately, Federal Reserve officials reinforced on their hawkish stance regarding future monetary policy tightening. Consequently, markets are largely anticipating a 75 basis-point interest rate hike at the upcoming September meeting, matching our forecast. Despite this news, markets finished the week higher. We expect the Fed will raise the federal funds rate to 3.75-4.00 (3.875 midpoint) by early next year. However, we anticipate the FOMC will keep rates elevated next year and not pursue interest rate cuts, all in order to lower inflation to 2 percent.

For more information on these and other events, please see below:

1. US TRADE DEFICIT CONTINUES TO DECLINE

2. CBO ESTIMATES DEFICIT REDUCTION FROM INFLATION REDUCTION ACT

3. INITIAL UNEMPLOYMENT CLAIMS CONTINUE TO FALL

4. PROPOSED FTC DATA COLLECTION RULE; WORKPLACE IMPLICATIONS

5. EXECUTIVE ORDER ON IMPLEMENTATION OF CHIPS ACT

6. DEFERRED ACTION FOR CHILDHOOD ARRIVALS (DACA) FINAL RULE

7. PROPOSED RULE ON JOINT-EMPLOYER STATUS

8. STREAMLINING APPLICATIONS FOR MEDICAID AND CHILDRENS’ HEALTH PROGRAMS

9. MONKEYPOX UPDATES

1. US TRADE DEFICIT CONTINUES TO DECLINE

The US trade deficit fell 12.6% in July to $70.6 billion, a nine month low. July exports were $259.3 billion, $0.5 billion more than June exports. Higher exports were driven by capital goods ($2.1 billion increase from June) and the automotive sector ($0.9 billion increase), even as food and natural gas exports declined. July imports were $329.9 billion, $9.7 billion less than June imports. Lower imports were driven by a substantial ($7.4 billion) decline in purchases of foreign consumer goods. July’s trade deficit was considerably lower than the $106.9 billion deficit reported in March 2022, a record, and July marked the fourth consecutive monthly decline in the trade deficit. Monetary policy and fiscal policy have tightened in recent months, working to slow US demand.

2. CBO ESTIMATES DEFICIT REDUCTION FROM INFLATION REDUCTION ACT

On Wednesday, the Congressional Budget Office released an updated estimate estimate of the budgetary effects of the recently-passed Inflation Reduction Act. The analysis shows that the Act will reduce deficits by a cumulative $238 billion from 2022 to 2031. The Act contributes $26 billion to deficits through 2026 but begins to reduce them substantially, by $264 billion, from 2027 to 2031. Among the major factors contributing to the score are the new 15 percent corporate minimum tax (estimated to raise $222 billion); revenue from increased IRS enforcement (net $101 billion), which will take time to materialize as new employees are hired and trained; repeal of a rule on drug rebates from the Trump Administration which was never implemented ($122 billion), and giving Medicare authority to negotiate drug prices ($96 billion), balanced by new spending on climate, health, and other priorities.

3. INITIAL UNEMPLOYMENT CLAIMS CONTINUE TO FALL

The advance figure for seasonally adjusted initial unemployment claims in the week ending September 3 was 222,000, a decrease of 6,000 from the previous week’s revised level, and a decrease of 10,000 from the previous week’s advance figure. Claims had generally risen from March through July, and have fallen again since then, a bullish indicator for the labor market. Initial claims are now 15 percent below the high set in mid-July, but 34 percent above the lows set in mid-March.

4. PROPOSED FTC DATA COLLECTION RULE; WORKPLACE IMPLICATIONS

The Federal Trade Commission (FTC) published an advance notice of proposed rulemaking (ANPR) on the “prevalence of commercial surveillance and data security practices that harm consumers,” inviting comment on whether the FTC should implement new rules “concerning the ways in which companies collect, aggregate, protect, use, analyze, and retain consumer data, as well as transfer, share, sell, or otherwise monetize that data in ways that are unfair or deceptive.”  The ANPR focuses in particular on the collection, retention, and monetization of consumer data in ordinary transactions such as purchases of groceries, Web browsing, and online sales in which consumer consent is not meaningful or truly informed; “as networked devices and online services become essential to navigating daily life, consumers may have little choice but to accept the terms that firms offer.” The FTC notes that “[w]hile, in theory, these personalization practices have the potential to benefit consumers . . .  they have facilitated consumer harms that can be difficult if not impossible for any one person to avoid.” This includes companies’ ability to set prices based on this consumer information.

Beyond this, the FTC also notes that “[s]ome employers, for example, reportedly collect an assortment of worker data to evaluate productivity, among other reasons -- a practice that has become far more pervasive since the onset of the COVID-19 pandemic.” Signaling that any new rules might also include the workplace, the FTC notes that “the term ‘consumer’ as used in this ANPR includes businesses and workers, not just individuals who buy or exchange data for retail goods and services. This approach is consistent with the Commission's longstanding practice . . . . The FTC has frequently used Section 5 of the FTC Act to protect small businesses or individuals in contexts involving their employment or independent contractor status.” Underscoring this, FTC Chair Lina Khan highlighted in her comments on the ANPR that “[r]eports suggest extensive tracking, collection, and analysis of consumer data in the workplace has expanded exponentially. Are there particular considerations that should govern how we consider whether data abuses in the workplace may be deceptive or unfair?” The ANPR poses 95 questions to which commenters may respond and also invites comments beyond those questions. Comments are due no later than October 21.

5. EXECUTIVE ORDER ON IMPLEMENTATION OF CHIPS ACT

The President signed an Executive Order on implementation of the CHIPS Act (“Creating Helpful Incentives to Produce Semiconductors”) laying out goals for “protecting taxpayer resources,” including accountability for those receiving funding from the Act; “meeting economic, sustainability, and national security needs” for semiconductors of all types; “ensuring long-term leadership in the microelectronics sector” including through research and innovation; “catalyzing private-sector investment”; “generating benefits” for “a broad range of stakeholders and communities,” including “well-paying, high-skilled union jobs” and “investing in disadvantaged communities; and “strengthening and expanding regional manufacturing and innovation ecosystems [.]” The Executive Order sets up a CHIPS Implementation Steering Council at the White House to coordinate policy development on implementation of the Act.

6. DEFERRED ACTION FOR CHILDHOOD ARRIVALS (DACA) FINAL RULE

The Department of Homeland Security published a final rule which continues a policy that immigrants who arrived in the United States as children of undocumented immigrants “should not be a priority for removal based on humanitarian concerns and other considerations” and reaffirming that, on a case-by-case basis, they may receive authorizations to work in the US, to “enable them to support themselves and their families, and to contribute to our economy [.]” The rule also reflects ongoing litigation on the Department’s powers in this area and concentrates removal efforts on “higher priority noncitizens” while “emphasizing that individual grants of deferred action are an act of enforcement discretion to which recipients do not have a substantive right.” In practice, virtually all people in this category who do not have a substantial criminal history will be able to obtain or retain a work authorization.

7. PROPOSED RULE ON JOINT-EMPLOYER STATUS

The National Labor Relations Board issued a proposed rule on the standard for determining when two employers serve as a “joint employer” of an employee under the National Labor Relations Act. The proposed rule would overturn a rule from late 2020 and restore the Board’s traditional practice “to explicitly ground the joint-employer standard in established common-law agency principles” and use case-by-case adjudication to address questions regarding joint-employers, arguing that the question of joint-employment is “highly fact-specific” and thus better decided on a case-by-case basis rather than through a regulatory standard and better suited to “complex and fact-specific scenarios presented by sophisticated contracting arrangements in the modern workplace.” In practice, the Board believes the change “would restore the Board's focus on whether a putative joint employer possesses the authority to control or exercises the power to control particular employees' essential terms and conditions of employment [.]” Comments on the proposed rule are due November 7.

8. STREAMLINING APPLICATIONS FOR MEDICAID AND CHILDRENS’ HEALTH PROGRAMS

The Centers for Medicare and Medicaid Services (CMS) proposed changes to “simplify the processes for eligible individuals to enroll and retain eligibility in Medicaid, the Children's Health Insurance Program (CHIP), and the Basic Health Program,” with a particular focus on those eligible for both Medicare and Medicaid and for those whose fluctuating incomes make it difficult to continue enrollment in Medicaid or a children’s health program. In particular, the proposed rule would “eliminate access barriers for children enrolled in CHIP by prohibiting premium lock-out periods, waiting periods, and benefit limitations [.]” It would also encourage Basic Health Programs, which help states ensure coverage for those whose household income is between 133 and 200 percent of the Federal Poverty Level and who thus fall between the eligibility levels for Medicaid and CHIP.” (New York and Minnesota are the only two states that have thus far chosen to establish Basic Health Programs, which enroll over 1,000,000 people. CMS is acting in part because of “coverage disruptions” from “more restrictive State enrollment policies,” noting a Georgetown University study which estimated that 4.4 million children did not have health insurance in 2019, up 726,000 from 2016 figures, and that 7.7 percent of Medicaid-eligible children did not have any health insurance, despite their eligibility for the program.

9. MONKEYPOX UPDATES

As of September 6, 20,733 cases of monkeypox have been reported in the US. States with the highest number of cases include California (3,833), New York (3,526), Florida (2,126), Texas (1,859), and Georgia (1,512). Globally, 54,911 cases have been reported, with 54,400 of those cases reported in locations that have not historically reported monkeypox. Countries with the highest number of cases include the US (20,733), Spain (6,749), Brazil (5,409), France (3,646), and Germany (3,505).

Scientists tracked COVID-19 outbreaks using wastewater testing and are now doing the same for monkeypox. A program led by researchers at Emory University, Stanford, and Verily is monitoring cases by analyzing sewage from 41 communities in 10 states. So far, the virus has been detected in 22 of those sites. “We have now detected monkeypox DNA in sewersheds before any cases were reported in those counties,” said Bradley White, senior staff scientist at Verily. The data are shared publicly on a website hosted by Stanford and with CDC.

On Tuesday, the US Department of Health and Human Services announced that it will significantly expand its distribution locations for monkeypox vaccines and treatments through a $19.8 million contract with AmerisourceBergen Corp. The deal will expand the number of weekly shipments of Bavarian Nordic’s JYNNEOS vaccine and SIga’s TYPOXX, a medicine originally approved for smallpox but now also used for treatment of those infected with monkeypox. AmerisourceBergen is expected to provide up to 2,500 shipments per week of both the vaccine and treatment.