Posted on

Is Gig Work a Job? Uber and Others Are Maneuvering to Shape the Answer

It was a potentially sweeping proposal from a Texas regulator: Companies that use a “digital network” to dispatch workers the way Uber does could label them contractors rather than employees.

The proposal, made in December, was a turning point in a campaign that has played out in legislatures and courts in numerous states, and even in Washington, as Uber and other gig-economy companies have risen to prominence in recent years.

Lobbyists involved in this state-by-state effort have worked behind the scenes to provide rule makers with a template. Hanging in the balance could be billions of dollars in costs, and even fundamental business models, as more gig companies move toward public stock offerings.

When such companies are able to classify workers as contractors, they don’t have to contribute to unemployment insurance or workers’ compensation, or heed minimum-wage and overtime laws. Industry officials estimate that a work force of employees costs companies 20 to 30 percent more than a work force of contractors — a sum worth many hundreds of millions of dollars per year to Uber.

Worker advocacy groups say the goal is to chip away at classification rules in enough places to create pressure for a broad exemption nationally.

What is notable about the Texas initiative, which would apply only to unemployment insurance, is that it emerged not from a democratically elected body but from an opaque bureaucracy. There were no hearings where outsiders were questioned, no meaningful floor debates — just a few perfunctory statements at public meetings and a 30-day comment period before the agency could issue a final proposal.

“This whole thing caught us by surprise,” said Jose Garza, executive director of the Workers Defense Project, a nonprofit group in Texas that helps workers fight wage theft and misclassification.

For weeks, the impetus for the rule was unclear. A spokeswoman for the agency, the Texas Workforce Commission, publicly denied that it relied on “outside sources” when drafting proposals.

But that narrative abruptly changed in early March when Mr. Garza’s group obtained a set of emails from the commission through a public records request. The documents, which The Texas Observer has also reported on, suggest an ambitious new phase of the campaign by gig-economy companies to solve their worker-classification problem.

Emails involving one commissioner and her staff show extensive communications with lobbyists working with Tusk Ventures, a venture-capital and political-strategy firm. Tusk, in turn, was retained by Handy, a company that dispatches workers, Uber-style, to perform household chores like cleaning and repairs. The strategy firm’s founder, Bradley Tusk, was once a top political consultant for Uber and remains a large shareholder who could cash out millions in equity when Uber goes public this year.

Tusk Ventures appears to have been the primary author of the Texas proposal. Large portions of the draft released by the Workforce Commission mirrored a proposal that the lobbyist forwarded to the agency one year earlier. Lisa Givens, the agency spokeswoman, said she had been unaware of the correspondence when she previously commented.

Image
Bradley Tusk, chief executive of Tusk Holdings, which includes the venture-capital and political-strategy firm Tusk Ventures. The firm has appealed to state agencies to codify the status of gig workers as contractors.CreditChristopher Gregory for The New York Times

And Texas is not the only place where Tusk has appealed to regulatory agencies rather than legislatures to cement gig workers’ status as contractors. According to the emails, the firm has pursued similar efforts in other states, like Illinois.

Asked in an interview about the strategy of working through regulators, Mr. Tusk said, “If we believe this is the right policy, our job is to get it through, and that can be the most efficient venue.”

He foreshadowed the plan in a book he published in September. “We’re working multiple angles to get this done federally,” he wrote. “And we’re working on legislation and rules in 13 more states, too.”

Different state and federal laws define employment somewhat differently, but most focus on factors like whether managers exert significant control over workers, and whether the work is central to a company’s business.

Uber, Lyft and Handy argue that their workers should be considered contractors because the workers decide when, where and how long they work. The companies say they are experimenting with ideas, like benefits, to improve workers’ economic security.

But skeptics argue that the companies exert control through ratings that elicit certain behavior, like treating passengers courteously, and by barring drivers who cancel too many rides. Uber and Lyft also determine pay rates for drivers, something independent contractors typically decide.

In recent years, courts and state and federal agencies have disagreed on this question. But there’s little debate that if courts and regulators classified large numbers of gig workers as employees, the move would be highly disruptive to companies that depend on them. Lyft, in its recent filing for an initial public offering, told prospective investors that being forced to classify drivers as employees “may require us to significantly alter our existing business model” and warned of potential “monetary exposure.”

About five years ago, the gig companies began to head off this prospect. In the legislation that Uber and Lyft backed to legalize their business, they often sought provisions indicating that ride-hailing drivers are contractors. About 25 states have enacted such provisions, known as carve-outs.

In other states, Uber and Lyft worked with a broader group of companies to have most gig workers who are dispatched through digital platforms, not just drivers, classified as contractors.

Image

Foes of efforts to classify gig workers as contractors say the companies determine pay rates and exert employer-like control over the workers’ expected behavior on the job.CreditLucas Jackson/Reuters

“Let me be clear,” an Uber lobbyist announced in 2016, before an Arizona Senate committee considering such a bill. “Companies like GrubHub, Handy, Lyft, Postmates, Thumbtack, YourMechanic, TaskRabbit,” she said, were all “involved with drafting this legislation and putting it forward in over 10 states.” The measure passed soon after.

One consequence of these industrywide measures is that they could affect far more than current gig workers. According to Maya Pinto of the National Employment Law Project, a nonprofit worker-advocacy group that has just published a report on the topic, the broader measures encourage companies to reclassify employees as contractors. Any business that dispatches employees — such as plumbers or electricians or nannies — could deem them contractors by using a digital interface to coordinate the work and meeting a few other criteria, Ms. Pinto said.

Marla Kanemitsu of Tusk Ventures, who has helped to write such measures, said the motivation for the bills wasn’t just to preserve the contractor status of Handy’s workers, but also to allow companies to provide benefits, like health care and retirement-savings vehicles, that might otherwise suggest an employment relationship.

“Providing benefits was always the driving force for this,” Ms. Kanemitsu said.

In the first six months of 2018, six states passed bills broadly carving out gig workers from employment laws and effectively classifying them as contractors. Mr. Tusk’s book referred to these states as the “low-hanging fruit of Kentucky, Iowa, Tennessee, Indiana and Utah (and medium-hanging fruit like Florida).”

But in other states, the fruit stood at a considerably higher altitude: The efforts came up short in Colorado, Georgia, North Carolina and California.

Colorado, with a large technology sector, was perhaps the most instructive example. The state was the first to pass legislation legalizing ride-hailing companies like Uber, and a local lobbying firm involved in that effort helped spearhead this one, too. It received more than $80,000 in 2018 from Uber and Handy, according to lobbying disclosures compiled by the National Employment Law Project. The carve-out bill glided through the Republican-led Senate on a bipartisan vote last March, but it ran into resistance in the Democratic-controlled House.

Image

Placing an order at a Brooklyn restaurant that also delivers food using the UberEats service. UberEats drivers operate on the same general model as Uber’s ride-sharing service.CreditSam Hodgson for The New York Times

Legislatures, it was becoming clear, could be a political quagmire, even in states that appeared welcoming. And the urgency was increasing. Handy would be acquired by a public company in the fall of 2018. Uber planned to go public in 2019. The status of its drivers remained unresolved in all four states where the broader legislation had failed.

Around the same time, however, Mr. Tusk’s firm was field-testing an alternative approach.

In December 2017, Jerry Valdez, an Austin lobbyist working for Handy, contacted an assistant to one of the three commissioners on the Texas Workforce Commission.

Like most lobbyists, Mr. Valdez and his colleagues assumed a posture of extreme solicitousness. They provided detailed responses to questions from the commissioner, Ruth Hughs, and her staff — like how such proposals might comport with federal law.

“I am sure it will be informative regarding the matters discussed,” Ms. Hughs’s senior legal counsel replied in one email.

Rarely were the lobbyists more helpful than in devising the rule itself, which would effectively expand to all gig workers an exemption that the state had already passed for ride-hailing drivers.

Mr. Valdez forwarded Ms. Hughs’s assistant a draft, with the subject line “Handy proposal,” one year before the commission released its own proposal.

Of the nine criteria that the Handy draft laid out for classifying gig workers as contractors, the commission adopted seven almost verbatim, then added two. The commission also hewed closely to Handy’s definition of a “marketplace platform” and “marketplace contractor,” terms of art for “company” and “worker.”

Mr. Tusk, whose firm stopped working for Handy after Handy was acquired last year, said there were many advantages to lobbying state agencies for a rule change: “You’re not tied to the legislative calendar. If the head of a committee in the State Assembly doesn’t like it because they have some business owner in their district, you don’t have as much of a problem anymore.”

A Handy spokesman said: “Our work in all states — including Texas — has always been conducted through appropriate channels and motivated by a desire for constructive solutions.”

The process behind the Texas regulation, the final version of which will be discussed at a public meeting before the commission can approve it, appeared to stand in marked contrast to the very public debate in Colorado. Advocates on all sides there continued discussing ways to address the employment status of gig workers long after the legislation failed last spring.

Labor officials, policy experts and even a representative from Uber attended a meeting hosted by a Denver think tank on how to protect gig workers from being exploited.

“There’s been a commitment to figure out a true stakeholder process,” said Dennis Dougherty, executive director of the state’s labor federation.

But not everybody appeared interested in an open debate. In June, when an aide to Commissioner Hughs asked the Tusk lobbyists if there were other states where regulators, rather than elected legislators, were addressing the contractor issue, one state they listed was particularly intriguing.

“We are also in discussions,” a Tusk official wrote, “with Colorado.”

Source:

NYT > Economy


Author: NOAM SCHEIBER

Posted on

Huawei Security ‘Defects’ Are Found by British Authorities

LONDON — A British review of Huawei found “significant” security problems with the Chinese company’s telecommunications equipment, a conclusion that supports a United States effort to ban it from next-generation wireless networks.

The British report, released on Thursday, said there were “underlying defects” in Huawei’s software engineering and security processes that governments or independent hackers could exploit, posing risks to national security. While the report did not call for an outright ban of Huawei equipment, it was endorsed by the country’s top cybersecurity agency.

The conclusions buttress the Trump administration’s push to convince its allies that Huawei, the world’s largest maker of telecommunications equipment, creates grave risks to national security. The White House has accused Huawei of being an arm of the Chinese government that can be used for spying or to sabotage communications networks, a charge that Huawei has vehemently denied.

But the American push has run into hurdles. Many countries, including Britain, have resisted the effort to ban Huawei, arguing that the risk can be mitigated. It is a critical time for wireless carriers as they prepare to spend billions of dollars to introduce next-generation wireless networks, known as 5G, which governments see as essential infrastructure for a rapidly digitizing global economy.

The British report highlights broader challenges facing many countries. While Huawei products may pose cybersecurity risks, the company is a key provider of the equipment needed to build 5G networks. If countries issue an outright ban, they could face costly delays in adopting the technology that not only will increase the download speeds of mobile phones but is expected to create breakthroughs in manufacturing, transportation and health care. And Huawei is already a central part of many countries’ telecommunications networks, making a ban logistically difficult.

Governments are looking to continue using Huawei’s equipment while limiting its risks. Germany, India and the United Arab Emirates, among others, have signaled they are unlikely to follow the Americans’ lead on a ban of Huawei’s 5G equipment.

In a statement, Huawei said the British report “details some concerns about Huawei’s software engineering capabilities. We understand these concerns and take them very seriously.”

This week, the European Union issued recommendations on securing 5G networks that didn’t call for a Huawei ban. The British government is expected to issue new telecommunications regulations this year.

One main concern raised by the United States and others pushing for a ban is Huawei’s ties to the Chinese government, which maintains tight control over the national economy. A law adopted by China in 2017 has been interpreted as requiring companies to provide assistance to Beijing on national security matters.

The British authorities are trying to differentiate Huawei’s security flaws from a broader effort by Beijing to infiltrate its networks. The report on Thursday described a company with poor engineering practices and problems stemming from those engineering flaws, more than one operating at the orders of Chinese authorities.

In the report, British officials determined that Huawei could not replicate much of the software it built, meaning that the authorities could not be sure what code was being introduced into the country’s wireless networks. They added that Huawei had poor oversight of suppliers that provided components for its products.

“There remains no end-to-end integrity,” the report said.

Since 2010, Britain has had an oversight board, now led by the National Cyber Security Center, tasked with overseeing Huawei’s operations. The company’s products and code are reviewed at a security lab about 70 miles outside London. In November, after British officials raised questions with Huawei about its practices, the company pledged to spend $2 billion over the next five years to improve its software and security processes.

The approach is seen as a potential model for other countries looking to add more safeguards over Huawei. Germany has opened a security lab in Bonn where Huawei’s equipment and code can be reviewed. The company has also opened a facility in Brussels to appease the concerns of European Union officials.

British officials have remained confident the Huawei risk can be managed. Ciaran Martin, the head of the National Cyber Security Center, said this year that an outright ban wasn’t necessary because the country had strong oversight and kept Huawei equipment outside the most sensitive areas of the country’s networks.

Yet Thursday’s report remained sharply critical of Huawei. “No material progress has been made,” the report concluded.

Source:

NYT > Economy


Author: ADAM SATARIANO

Posted on

Samsung Predicts Disappointing Results as Chip Prices Fall

Samsung Electronics warned on Tuesday that it would report disappointing financial results thanks to slumping prices for chips and LCD screens, in another sign of slowing demand for smartphones and other gadgets.

The South Korean electronics giant said it was anticipating a “widening price fall among major products” for the first three months of the year amid “weakening overall demand” for its products. The disclosure was unusual for Samsung, which typically offers a forecast of its financial performance shortly after the end of its quarterly period.

The announcement from one of the workhorses of the consumer electronics industry is the latest indication of waning global demand for sophisticated tech products. It comes against the backdrop of a 7 percent decline in smartphone shipments globally during the fourth quarter of 2018, the fifth quarterly decline, according to an analysis by the Hong Kong-based research firm Counterpoint.

The change, in part, comes as consumers hold on to their smartphones longer, unconvinced of the need to upgrade to new models that offer only incremental technological improvements.

But Samsung’s announcement also points to a broader global trend as China’s economic engine has decelerated. Europe has shown signs of slowing as well. In the United States, where the economy has expanded for nearly a decade, signs point to a rising risk of recession. Consumers feeling pinched generally hold off on buying new gadgets.

The deceleration has been particularly hard for companies like Apple that have looked to China’s growing middle class for future revenue growth. The company saw its total sales in the region that includes China plummet 25 percent in the fourth quarter of last year, to $13.17 billion.

While Samsung is the world’s largest seller of smartphones — best known for its Galaxy series — the semiconductor business accounts for the bulk of its profit.

Both Samsung and Apple have seen increasingly stiff competition from domestic manufacturers in China, where companies like Huawei and Xiaomi have drawn consumers away from foreign brands with inexpensive, feature-rich phones. Beijing’s industrial policies have also encouraged local manufacturers to expand chip production, which China has identified as a critically important part of its economic strategy.

The policy, along with waning demand, has led to growing stockpiles of chips in other countries throughout the region. Manufacturers in Japan have also reported that warehouses are filling up, as manufacturing capacity has far outstripped anticipated Chinese demand.

In its statement Tuesday, Samsung said it would seek to boost competitiveness by offering more technologically sophisticated products, indicating it would seek to counter the flood of Chinese components into global markets with higher-quality offerings.

Source:

NYT > Economy


Author: BEN DOOLEY

Posted on

Corner Office: Indra Nooyi: ‘I’m Not Here to Tell You What to Eat’

When Indra Nooyi stepped down as chief executive of PepsiCo last year, she was replaced by a man — and the ranks of female C.E.O.s further dwindled. Today, fewer than 5 percent of companies in the Standard & Poor’s 500 are led by women.

Ms. Nooyi’s absence will be particularly notable. During her 12 years running Pepsi, she increased the company’s top-line revenues while expanding its offerings to include healthier foods. At the same time, she fended off activist investors calling for higher short-term profits.

Her tenure was not without controversy, though. Health advocates pushed the company to reduce the amount of salt, sugar and fat in its products. Pepsi was accused of deceptive marketing practices. And Ms. Nooyi was among the business leaders who stepped down from presidential advisory councils after President Trump’s response to the violence in Charlottesville, Va., in 2017.

Though the White House reportedly considered Ms. Nooyi to be World Bank president, she did not wind up with the job. Instead, she will be teaching at West Point, and recently joined the board of Amazon.

This interview, which was condensed and edited for clarity, was conducted in New York.


You joined the board of Amazon just after its about-face on building a new headquarters in New York. What happened?

New York was making an investment in Amazon in the short term to get many years of benefits. It’s very hard to explain the many years of benefits. People just worry about what short-term investment you’re giving. It was a big loss for New York.

Philosophically, where do you stand on this?

It’s a competitive environment. Every state is competing for those jobs. So it becomes a race between the states, each one putting up the right incentives to get the companies. I’m not sure the companies themselves are demanding it. I think they just said, “We want another headquarters,” and there’s a feeding frenzy from all the states.

Should companies really participate in this race to the bottom and pit states against one another?

If companies don’t get the incentives, the shareholders are going to say, “Why didn’t you get the incentives?” I’ve heard that before. “Did you get the incentives from the state? Did you get the maximum tax reductions from the state?” The shareholder community expects it from you.

What was your childhood like?

I grew up in Madras, which is now Chennai. We never lacked for anything, but we didn’t have much. It was a good, conservative Brahmin family, deeply steeped in learning and education. That was the only focus. The expectation was you would get, at a minimum, a master’s degree. If you got a Ph.D., you’re better off. We were the ultimate nerds. The only difference was, in my case, I decided to be a nerd in some ways and branch out in other ways. I played cricket. I climbed trees. I played the guitar. I did all those wild and wacky things.

What was it like for you when you arrived in the U.S. to attend the Yale School of Management?

I got dropped off in New Haven and had nobody to help me. They didn’t have support systems for international students. They gave you a map and said: “Go register for classes here. Go do this there.” I was a vegetarian, so I didn’t know what to eat. I needed curds for every meal, but I didn’t know where to get them. Then somebody said: “It’s the same as yogurt. Go get yogurt.” The first few weeks were very tough. But little by little, the international students banded together, because we were all miserable without any support systems. Pretty soon, we were having a wonderful time.

What were the big takeaways from your time at Yale?

The school had just started, and the basic belief, which is more relevant now than ever, was that companies are members of society, and what you do has to be viewed as through a stakeholder lens, not just a shareholder lens. They steeped all of us in that thinking.



There was a moment early in your career when you had the chance to go to a few different companies, including G.E. and Monsanto. Why did you choose Pepsi?

Wayne Calloway, who was then C.E.O. of Pepsi, was a man of few of words. He called me at the last minute, just before I was going to join G.E., and made an amazing pitch. He was on the board of G.E., and he said: “I hear you’re going to join G.E. It’s a great company, and Jack Welch is a great C.E.O. But my need at Pepsi is greater than Jack’s. We don’t have somebody like you here, and you’ll make a bigger difference at PepsiCo.” They didn’t have somebody of my ethnicity or international outlook who was female in senior management at PepsiCo.

When did you start thinking about the need for Pepsi to be more than a soda and snacks company?

The first recognition came, I think, in 2000, when I was head of strategy. The marketplace was changing. It was changing slowly, but we had to make some moves before it changed too fast. We could see articles on health and wellness were picking up speed.

We bought Quaker Oats in 2000 because we had no food brand that could play in the morning. It was also clear that beverage habits were changing. Our own employees’ consumption was changing. It went from regular Pepsi to Diet Pepsi and Pepsi Max. Everywhere you looked, you could see that consumption of low-calorie, zero-calorie products was increasing.

How do you get a big multinational company to buy into such a dramatic change in strategy?

If the C.E.O. doesn’t feel the change, as opposed to just talking about the change, people will see right through it. So the first thing I had to do was make sure that whenever I talked to employees about it, I shared experiences, observations, data. I talked about water shortages in parts of the world. I would show them examples of plastic waste, the lack of recycling programs and what that could do to the environment. And I would talk about people’s consumption of fat, sugar and salt.

We had town halls and invited the spouses of employees to come. At one in Egypt, a lady stood up and said, “My husband’s going to be mad I’m saying this, but I have a kid who’s 2, and I read every label, and I’m not willing to give my child all PepsiCo products.”

Plenty of people questioned the strategy. What made you stick with it?

Our board bought into the strategy. If your board is not on your side, it doesn’t work. But they said, “What you’re doing with the portfolio, what you’re doing with the whole environment and sustainability issue, what you’re going to do with the focus on diversity — this is the right way to move the company forward.”

And I told them: “This means that I’m not going to focus on beating every index. I’m going to focus on duration of returns, rather than level of returns for a short time.” And the board said, “Yes, that’s the right way to go at it.”

But if you’re really committed to health, why keep selling soda and chips?

Mountain Dew is a fantastic brand. It’s a great franchise. I’m not here to tell you what to eat or drink. My job is to give you a choice of products, between fun for you, better for you and good for you. I’ll give you nutritious products. I’ll give you low-calorie products. I’ll give you indulgent products.

I have to make sure that the good-for-you products aren’t more expensive than the fun-for-you products, and that the good-for-you products don’t taste awful while the fun-for-you products taste great. But if I make all the products ubiquitously available, priced reasonably the same and they all taste great, ultimately it’s a consumer choice. And if I put the right amount of advertising dollars between the whole portfolio, I’m letting the consumer decide.

What did you learn from your time fighting with activists such as Nelson Peltz?

I always told Nelson: “You may be an external activist, but I’m an internal activist. I’ve got a lot of stock. So if you have an idea to improve the company, I’ll implement it. But if you have a radical, short-term idea that destroys the company in the long term, uh-uh, ain’t going to work. I’m not going to do it, and my board is not going to accept it.”

What was it like working with President Trump on the Strategic and Policy Forum?

Each of the meetings was constructive. He gave us his undivided attention. He listened to everything we had to say. And he could not have been nicer. He went out of his way to drink Diet Pepsi when I was there.

Was it a mistake to disband the forum after his response to the violence in Charlottesville?

Yes and no. We all regretted disbanding the forum. But the fact of the matter is, there were other issues that took the focus away from the good work we were doing. And when you’re facing that sort of criticism, it’s very hard to remain engaged.

What is it going to take to get more women in the C-suite?

The issue is not women in the C-suite, it’s a leaky pipeline. The pipeline is leaking at the early stages. Because we get enough women coming into the work force in various stages. But by the time they get to Level 2 and Level 3, they just drop out of the work force for several reasons.

One that can be addressed quickly is this tremendous unconscious bias. On top of that, the time that they get to Level 2 in a company is when they will have families, and many companies are not mandated to give parental leave. People just drop out of the work force, and then we wonder why they don’t go up to the top. We can ill afford to be a country where women drop out of the work force.

Source:

NYT > Economy


Author: DAVID GELLES

Posted on

The Great American Cardboard Comeback

COMBINED LOCKS, Wis. — As he watched the No. 7 paper machine hiss and hum for what he thought was the last time, Rick Strick felt a lump well in his throat.

It was Sept. 21, 2017, and the paper mill that had employed Mr. Strick, his father and his grandfather was shutting down after 128 years. Demand for the glossy white paper that the mill produced for brochures was plummeting as advertising continued its flight to the internet.

The village of Combined Locks, Wis., founded when the mill opened in 1889, braced for the loss of its largest employer and feared that the community would be left with a hulking industrial wasteland, just like the other failed paper mills dotting the state. And for the first time since high school, Mr. Strick, who was then 58, started looking for a new job.

Then something unexpected happened: Amazon and China, two forces that are often blamed for destroying American employment in retail and manufacturing, helped Mr. Strick get his job back.

“No one is shocked when a paper mill closes anymore,” said Kyle Putzstuck, the president of Midwest Paper Group, which bought the Combined Locks mill soon after it was shuttered. “The shocking thing is when one reopens.”

The reason for the revival has to do with the millions of packages that Amazon and other online retailers ship around the world — specifically, the humble cardboard used to construct them. Over the past five years, e-commerce has fueled demand for billions more square feet of cardboard.

An industry that has struggled mightily during the digital age has a rare opportunity for growth. Since reopening, the mill in Combined Locks has switched most production from white paper to brown, installed equipment that can crush used cardboard to make new paper, and hired back about half of the 600 workers laid off during the shutdown.

The smooth brown paper they produce goes to cardboard-making vendors, who sell it in turn to Amazon and other retailers, who ship them to your doorstep.

“Brown is the future,” Mr. Strick said one morning this winter at the mill, where he had resumed his job as a maintenance supervisor.

Video

Cardboard rolls in production. Whitten Sabbatini for The New York Times

Brown paper sales slowed following the Christmas e-commerce rush, but industry analysts say the conditions are still ripe for long-term growth. That’s where China comes in. Until early last year, much of the used cardboard consumed in the United States was being shipped to China, where it was recycled into new boxes.

Then, in January 2018, China stopped accepting most used cardboard imports. The material was mixed with so much trash and food contamination that it was causing serious environmental issues.

The policy change has disrupted residential recycling programs across the United States, forcing some communities to bury or burn materials they previously recycled. But for American paper companies that make new cardboard out of used boxes, China’s clampdown has been a boon. It has created a glut of cardboard scrap that is allowing American mills to obtain their most vital raw material at 70 percent less than it cost a year ago.

In Combined Locks, paper drives not only the local economy, but the mill’s identity. Its workers almost never say they are “manufacturing” or “producing” paper. They say they are “making” paper, reflecting how the process is still thought of as a craft with a history that dates back to China in 105 A.D.

Image
Rick Strick, an employee of Midwest Paper Group. “Brown is the future,” Mr. Strick said one morning this winter, where he had resumed his job on the maintenance staff.CreditWhitten Sabbatini for The New York Times

The mill has a powerful presence — as if a sci-fi city has landed in a blue-collar suburb. The facility comprises 1.2 million square feet of cavernous buildings, winding tunnels and snaking railroad tracks. It operates 24 hours a day, its lights blazing and towering stacks steaming even in the dead of night.

Across the street is the Lox Club, one of Wisconsin’s traditional “supper clubs.” The bar and restaurant was founded in 1965 by a retired paper mill worker and his wife in a space attached to their house, and the club still has the warm feeling of someone’s home. There are soft reading lamps standing next to comfortable armchairs and an oil painting of two white-tailed deer.

Sitting at the bar one night were Steve Gilsdorf and his wife, Karen. They were sipping the club specialty: Old Fashioneds garnished with brussels sprouts. They both work in the paper industry.

“Around here, we’ve got the Packers and paper,” said Mr. Gilsdorf, 54, who works for a supplier of paper sheets used to cover exam tables in medical offices.

One woman at the bar said she worked part-time for a hand surgeon whose clients often include patients injured in the mills. Another patron bragged about the local high school football team, the Paper Makers, winners of multiple state championships.

On some days, the odor of rotten eggs hangs over the village, a smell some residents attribute to another mill in a nearby town that uses sulfur to break wood down into pulp.

“I’ve heard,” said Ben Fairweather, head of operations at the Midwest Paper mill, “some people say that is the smell of money.”

Image

The Paper Discovery Center along the Fox River, where paper mills sprang up after the Civil War.CreditWhitten Sabbatini for The New York Times

A few miles down the Fox River, in the city of Appleton, sits the Paper Discovery Center museum and the Paper International Hall of Fame. Located in a former mill, the modest shrine honors those whose “accomplishments have truly revolutionized civilization.” Johannes Gutenberg, the inventor of the printing press, has a plaque on the wall. So does Wang Zhen, creator of the world’s first mass-produced book in 14th-century China.

Wisconsin has contributed its share of greats to the pantheon of paper. Morris Kuchenbecker, a retired package design engineer from the city of Neenah, patented a series of frozen-food cartons. Ernst Mahler, a chemist, invented the technology that makes tissues soft.

The region’s paper history dates to the years following the Civil War, when mills sprung up on along the Fox River to feed the industrializing nation’s demand for reading and writing material and disposable towels. “It was like the Silicon Valley of its time,” said Dan Clarahan, a board member of the Paper Discovery Center. One owner’s home was the first in the nation illuminated by Thomas Edison’s light bulbs.

You can still see remnants of paper’s glory years. Stately Victorian homes line many Appleton neighborhoods. The adjoining village of Kimberly is named after one of the founders of Kimberly-Clark, the maker of Kleenex and Huggies.

Wisconsin remains one of the nation’s largest paper producers, and much of it is still made in giant mills along the Fox. Today, huge conglomerates like Georgia Pacific, along with a handful of smaller companies, produce paper in the Fox River Valley area. But the industry has been contracting for decades, and it is not only because of the internet. Pricing pressure from giant retailers depressed the profit margins on brand-name paper towels, tissues and toilet paper.

Image

Ann Shippy met her husband when they both worked at the mill. He has since retired and her son, Ben, joined the company.CreditWhitten Sabbatini for The New York Times
Image

Art Price specializes in pipefitting. He worked at the mill in Kimberly before it was shuttered.CreditWhitten Sabbatini for The New York Times

In 2000, there were roughly 49,600 paper manufacturing jobs in Wisconsin, according to state figures. By 2017, that work force had declined to about 30,000; the paper industry in the Fox Valley shed half its workers over that time period. Last year, Kimberly-Clark closed one of its Wisconsin plants and received a $28 million state tax subsidy to help keep another location open.

In her 23 years in the industry, Airica Hendriks has watched the changes at the mill in Combined Locks with growing unease. Ms. Hendriks, 44, worked her way up from the lowest rank to the role of “coating tender,” applying the starch that make paper more rigid.

“Was this my dream job? No,” Ms. Hendriks said. “But it is a job I learned to love. This is just what I do now. I am a paper maker.”

Over the years, the mill’s products reflected the world’s evolving uses of paper: phone books, carbon-copy paper, paper for large inkjet printers. The company also had a string of owners. A cash register company. A British tobacco conglomerate. A French investment firm.

Image

Over the years, the mill’s products reflected the world’s evolving uses of paper: phone books, carbon-copy paper and paper for large inkjet printers.CreditWhitten Sabbatini for The New York Times

In recent years, demand for glossy brochures, the mill’s biggest moneymaker, kept falling. Ms. Hendriks said she knew the situation was dire in summer 2017, when her supervisors started “harping” on her not to waste any starch.

“They have never cared about these things,” she remembered thinking. “What is going on?”

That August, the bank called its loan and required immediate repayment from the mill, citing a technical term in its loan agreement. The paper company filed for receivership, and all 600 workers were told that they were out of a job.

The shutdown was a shock. The mill had never closed for more than a week of maintenance, not even during two world wars.

Ed Ver Voort, 50, started working at the mill when he was 18. His first job was as a “broke hustler” who scrambled to pick up sheets of paper that would spew off the machine when a roll unexpectedly broke.

“I owed everything to this place,” said Mr. Ver Voort, now an assistant superintendent at the mill. “My car, my food, my home. I was able to send my daughter to college working here.”

When the mill closed in 2017, most of its workers were able to find manufacturing or warehouse jobs. But these typically paid less than their unionized jobs at the paper mill.

Ms. Hendriks got a position at a plastics factory earning about $17 an hour, about $11 less than she made at the paper mill. She canceled cable, quit smoking and sold her plasma to a blood bank for $300 a month. She did that as long as she could — until her arm got sore.

Image

Paper mills owe their revival to the surge in e-commerce and the millions of cardboard shipping boxes it generates.CreditWhitten Sabbatini for The New York Times

The mill appeared destined for the scrap heap. In September 2017, it was purchased out of receivership by a pair of companies that specialized in liquidations.

The village quickly passed an ordinance seeking to prevent the new owners from abandoning the property and leaving an environmental mess. The union representing the paper makers and the county executive also filed legal petitions seeking to keep the mill running.

The mill’s new owners, who called themselves Midwest Paper Group, eventually agreed that it should be in operation. Across the country, failed white paper mills were being converted to brown to feed the cardboard-box boom, and Midwest followed suit.

The Chinese paper company Nine Dragons has acquired a handful of paper mills in Maine, Wisconsin and West Virginia and increased brown pulp and paper production. With China constricting imports of used cardboard, Nine Dragons bought the mills in the United States partly to get closer to the country’s plentiful source of scrap paper. Another major player is the Kraft family, which owns a paper mill and a cardboard boxing plant, in addition to the New England Patriots.

“I go into companies where the writing is on the wall, but not in this case,” said Mr. Putzstuck, Midwest Paper Group’s president.

A 31-year-old turnaround expert from Chicago, Mr. Putzstuck always seems to be in motion, even when seated. He had worked on a failed mattress company, a refrigerator recycler and an oil-services company, but never a paper maker.

Image

CreditWhitten Sabbatini for The New York Times
Image

CreditWhitten Sabbatini for The New York Times

But there he was in winter 2017, living in a hotel room near the mill, about to ask dozens of employees whose lives had been upended by the mill’s closure just months before to return to what amounted to a start-up.

“It’s a big deal asking people to come back to work when they had gotten other jobs,’’ he said.

A big step was persuading the union to agree to a new set of working conditions. The pay stayed largely the same — an average hourly wage of $25.50 — but the company would not contribute to 401(k) funds. Most significantly, the workers would be required to take on duties that previously had been performed by several employees.

“Everybody is doing multiple jobs now,” said John Corrigall, the mill’s head of “people, legal and environmental affairs.”

Union officials said they were willing to make concessions because the mill needed to get back on its feet. The alternative, the union said, was losing another paper plant forever.

Under the new business plan, the mill was not only a paper producer, but also a large recycling facility. The new owners installed an old corrugated container machine, known as an O.C.C., a towering vat of swirling warm water, where large bales of used cardboard boxes are dumped and then ground into the stock that makes the new brown paper.

Video

The OCC machine. Whitten Sabbatini for The New York Times

Recycling used cardboard is wet, messy work. One worker said he wanted to vomit while unloading used boxes this summer. “They smelled like fish,” he said.

The bales of used boxes, which typically come from homes and large retailers, often contain unpleasant surprises like soda bottles, propane tanks and soccer balls. The workers on the O.C.C. were all required to have tetanus shots.

The O.C.C. turns the boxes into a thick, brown gruel. That mixture is then strained of plastic tape, staples and other debris before being pumped into the paper machine.

At first, Ms. Hendriks was skeptical about the turnaround plans. “You get kicked in the pants like that — do you trust to go back?” she said.

But after touring the mill and seeing new investments like the O.C.C., she called her manager at the plastics factory and told him she was headed back to making paper.

“I took a leap of faith that this would be all right,” she said.

Image

The mill hired back about half of the 600 workers laid off during the shutdown.CreditWhitten Sabbatini for The New York Times

The plan to convert the mill to brown paper made business sense to the laid-off workers. They all shopped online and saw the opportunity in cardboard — or containerboard, as it’s known in the industry.

But many questioned whether the mill would be able to make brown paper after decades focused on white. The fibers are coarser, which puts more wear on the machines. The Combined Locks mill also lacked a “shoe press” that traditional brown mills use to wring out water.

“Brown is a different bird,” said Jerry Meulemans, who is known around the mill as Grizz because of his personality on the job. (“I can be a bear to work with.”)

Papermaking is almost entirely automated. But the product is still largely a byproduct of nature, and the process can easily be foiled by the slightest variable.

The key is getting the wood fibers in the pulp to bind by using a combination of heat and pressure. With belts and rollers moving at about 25 miles per hour, the machine transforms the soupy pulp into a giant roll of rigid paper that resembles warm, earthy-smelling bread in seconds. If one element isn’t calibrated correctly — too much moisture, a splotch of bacteria — the paper can tear and the roll has to be made again.

Image

“If you don’t have multiple jobs in your title, you are doing something wrong,” said John Corrigal, who is the head of “people, legal and environmental affairs” at the mill.CreditWhitten Sabbatini for The New York Times

At 7 a.m. on Dec. 11, 2017, workers gathered for an all-hands meeting in a large, wood-paneled conference room. Speaking to the staff, Mr. Fairweather, the head of operations, listed the Wisconsin mills that had closed recently, including a nearby plant that had been torn down to make way for a housing development called Paper Mill Estates.

“Most mills don’t get a second chance,” Mr. Fairweather told those assembled.

After the meeting, the workers signed their names on a wall outside the conference room in a show of solidarity. Then they spent the day preparing the idled machinery to restart.

The next morning, the workers watched anxiously as the brown pulp flowed into the paper machine. Later in the day, a sample of the mill’s first batch of brown paper was brought to a lab about 20 miles away. The sample was used to make a small section of a cardboard box and then put through a series of strength tests.

It was around 5 p.m. when the mill got the results. “It’s good,” the lab reported.

The mill was making paper again.

Image

The mill as seen from The Lox Club, a supper club founded by a retired worker and his wife in 1965.CreditWhitten Sabbatini for The New York Times

Source:

NYT > Economy


Author: MICHAEL CORKERY

Posted on

Faster Tax Cuts Could Be Backfiring on Republicans

When President Trump signed a large package of tax cuts into law in 2017, the Internal Revenue Service moved to make sure the savings showed up quickly in paychecks. Doing so probably lifted consumer spending last year, but it may have hurt Republicans politically, new polling suggests.

Administration officials, it appears, underestimated Americans’ love of tax refunds.

Nearly four in five people say they would rather overpay their federal income taxes and get a refund every spring — effectively making an interest-free loan to the government — than underpay and owe money come tax season, according to a poll for The New York Times by the online research firm SurveyMonkey.

That preference appears to be influencing how Americans view Mr. Trump’s signature cuts: Among people who have already filed their tax returns, those who said they received a bigger refund this year are far more likely than others to approve of the law.

But many people are reporting that their tax refunds are smaller this tax season, or that they owe money. In addition to being more likely than other Americans to say they oppose the law, those people feel worse about the economy over all. They are also significantly more likely to disapprove of Mr. Trump’s performance in office.

The findings suggest that the administration’s decisions on withholding may have hurt the law politically.

“I was hopeful that the rhetoric for once was going to match expectations and it did not,” said Tony Mendes, a 61-year-old federal employee in Denver. “I got back less than I would have anticipated.”

Independent analyses consistently show that the 2017 law gave most Americans a tax cut, and few families will end up paying more than under the previous rules.

Federal officials faced a choice about how to pass those savings on to taxpayers. One option would have been to make most people wait until they filed tax returns this spring, delivering a tax-season windfall but essentially delaying the cut by a year.

Instead, the I.R.S. chose to begin withholding less from workers’ paychecks early last year. That put more money in workers’ pockets right away, but made the effects of the tax cut harder to see, since the savings amounted to just a few dollars per pay period for many people.

The new law made numerous changes to the tax code — eliminating and capping some deductions and credits while increasing others — and the revised withholding rules did not account for every situation. As a result, government auditors warned last year that the withholding changes would reduce refunds for several million Americans.

Treasury officials acknowledged on Friday that some people had struggled to navigate the new withholding setup, leading them to underpay their taxes. The department will not charge a penalty to those who paid at least 80 percent of their total tax liability during the year, the officials said. Previously, the penalty threshold was 85 percent.

As of last week, I.R.S. statistics showed that the average refund had not changed for those who had filed. But total filings were down, and the share of returns producing a refund had declined by 0.5 percentage points, or about 300,000 filers. (Experts caution against reading too much into tax statistics before the April filing deadline.)

“You can see people potentially being frustrated if the tax season isn’t playing out the way they expected,” said Michelle Meyer, chief United States economist for Bank of America Merrill Lynch. “Other people might be quite pleased. It is quite split how people are being impacted by the tax cut.”

Democrats have accused the Trump administration of political gamesmanship.

“The Treasury Department under-withheld taxes from millions of families’ paychecks to make the benefits of the tax law appear greater before the 2018 election, and the bill is now coming due,” Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee, said in an emailed statement. “Families who depend on annual tax refunds to pay down debt, cover medical expenses and afford car repairs are discovering their refunds are smaller or they owe money.

More on refunds and the tax law

Why People Are Outraged at Lower Tax Refunds (but Probably Shouldn’t Be)

Why a Tax Cut Might Not Mean a Bigger Refund

Among people who have already filed tax returns, 32 percent said their refunds had shrunk from a year ago, compared with 22 percent who said their refunds had grown, according to the Times survey. Another 11 percent said they owed money this year.

Tax refunds reflect the difference between what taxpayers had withheld during the year and what they actually owed. They reveal next to nothing about whether a given household got a tax cut under the 2017 law.

Still, it is not always easy for taxpayers to figure out how they are affected by policy changes, and many people may draw conclusions based on the size of their refunds.

Among survey respondents who said their refunds were smaller or that they owed money, just 35 percent believed they had gotten a tax cut as a result of the law. Among those whose refunds grew or stayed the same, on the other hand, 49 percent said they had gotten a tax cut.

Cause and effect is not always straightforward in public opinion surveys. It is possible that people who already approved of Mr. Trump and his policies are more likely to believe their refunds had grown, or are at least more likely to report that to pollsters. Surveys in recent years have revealed growing partisan splits on views of the economy and other issues.

Laura Wronski, a researcher for SurveyMonkey, noted that Republicans were more likely to say their refunds had gotten bigger.

“It’s just unlikely that it aligns that perfectly along partisan lines,” she said. “It’s more likely that people are going to stick to the side they’re on.”

Still, partisanship is not the whole story. Even among Republicans, those who said their refunds had shrunk were significantly less likely to believe they had received a tax cut.

By adjusting workers’ paychecks right away, the I.R.S. may have helped pump up economic growth last year. People are more likely to spend small, incremental increases to their paychecks, economists said, whereas they often try to save larger lump sums. Consumer spending surged in the middle of last year, helping the economy to one of its best years of the past decade.

The uncertainty over tax refunds could now be dragging spending down. Low-income consumers, in particular, often rely on tax refunds to finance major purchases. Data from Bank of America showed a dip in spending among low-income households in February, which could reflect a delay in tax refunds.

“If you’re used to getting a nice refund and then you discover you owe, that’s a big shock,” Ms. Meyer said.

Low earners are not the only ones affected. Alan Abraham, who works in medical research in Pittsburgh, said he used his tax refund every year to buy season tickets to the Penguins. This year his refund was much smaller, and he has not decided whether to renew.

Mr. Abraham said he paid more under the new tax law because of its cap on the deduction for state and local taxes, which hit him particularly hard because he owns two homes.

A political independent who supports a flat tax, Mr. Abraham said he mistrusted politicians of both parties and did not vote in 2016. But he said the tax law had made him less likely to support Mr. Trump, whom he did not vote for in 2016, next year.

“At the beginning I was, like, ‘Well, let’s see how he does,’” Mr. Abraham said. “Based on the fact that my tax bill has gone up, I actually wouldn’t vote for him.”

Despite the skepticism of people like Mr. Abraham, the tax law has gained support in recent months. Half of the survey’s respondents said they approved of the law, up from 45 percent in September and the highest share since February 2018. (The Times has not asked about the tax law every month.)

There are signs that as more people file returns, they are discovering that they benefited from the law. Among those who had filed before completing the survey, 43 percent said they definitely or probably received a tax cut, compared with 35 percent of those who had not yet filed.

“It seems like people are realizing as they’re going through the process of doing their taxes that, ‘Oh, things did improve for me, and I wasn’t expecting that,’” Ms. Wronski, the SurveyMonkey researcher, said.


About the survey: The data in this article came from an online survey of 10,046 adults conducted by the polling firm SurveyMonkey from March 4 to March 10. The company selected respondents at random from the nearly three million people who take surveys on its platform each day. Responses were weighted to match the demographic profile of the population of the United States. The survey has a modeled error estimate (similar to a margin of error in a standard telephone poll) of plus or minus 1.5 percentage points, so differences of less than that amount are statistically insignificant.

Source:

NYT > Economy


Author: BEN CASSELMAN and JIM TANKERSLEY

Posted on

Amazon and Union at Odds Over Firing of Staten Island Warehouse Worker

Amazon’s plan for a major corporate presence in New York ran headlong into concerns about the company’s labor practices in the city. The giant project fell apart, but the labor friction lives on.

A former employee at an Amazon warehouse on Staten Island is accusing the company of firing him last month in retaliation for speaking out about what he says are difficult working conditions.

A union trying to organize a few thousand workers at the Staten Island warehouse formally complained to the National Labor Relations Board on Wednesday on behalf of the former employee, Justin Rashad Long, opening a new phase in the organizing push.

“Instead of firing Rashad, Amazon should have listened to him and addressed the specific issues that he and other warehouse workers have raised,” said Stuart Appelbaum, the president of the Retail, Wholesale and Department Store Union, which is pursuing the case.

The retail workers’ union played a leading role in resisting the deal that would have brought a second Amazon headquarters to Queens in exchange for nearly $3 billion in public subsidies. The union said it was opposed to the project unless Amazon established a “fair process” for allowing warehouse workers in the city to unionize, although it said it was willing to negotiate what that meant.

At a meeting with labor leaders and Gov. Andrew M. Cuomo last month, Amazon officials agreed to continue discussing the matter, but the company abandoned the Queens project the next day.

There are no unionized Amazon warehouse employees in the United States. Last year, some workers at a warehouse in Minnesota became the first in the United States known to have negotiated with management. The employees, many of them originally from Somalia and elsewhere in East Africa, were upset about strict productivity targets that some said made it hard for Muslim workers to pray at work. Amazon has said it saw this not as a negotiation but as an exercise in community engagement.

“Amazon already offers what unions are requesting for employees,” said Ashley Robinson, an Amazon spokeswoman. “We encourage anyone to compare our overall pay, benefits, and workplace environment to other retailers and major employers.”

The union’s action on Mr. Long’s behalf is its first for a worker at the Staten Island warehouse. The union has also been involved in efforts to organize workers at Whole Foods Market, which Amazon owns.

Before he was fired, Mr. Long asserted at public meetings and in comments to the news media that Amazon required him and other workers to work 12-hour shifts five or even six times a week with few breaks during the peak holiday season, and that warehouse managers had unreasonable production targets.

Image
Amazon’s warehouse on Staten Island. The retail workers’ union is trying to organize a few thousand employees there.CreditJohannes Eisele/Agence France-Presse — Getty Images

“Getting out customer orders is all they care about,” Mr. Long said in an interview. “They don’t care if you’re tired, if you’ve worked 60 hours. It’s irrelevant.”

Ms. Robinson, the Amazon spokeswoman, said that employees at the warehouse never worked more than 60 hours a week during the peak season, and that 52 hours a week was more common. More than three-quarters of the workers at the warehouse meet the production targets that Mr. Long complained about, she said.

While at Amazon, Mr. Long was involved in the retail workers’ organizing campaign, and he appeared at a rally with union officials who read a statement from him criticizing conditions at his warehouse. He also described the conditions at a breakfast the union hosted. Video from both events is available online.

Mr. Long, whose job was to pick items from robotic pods and to place them in plastic boxes for other workers to pack for shipping, was fired on Feb. 12. The company cited a safety violation. Mr. Long said he had picked up the wrong item and reached back out to return it to the pod, something the company discourages because of the risk of injury.

The union’s filing says the safety violation cited as the reason for Mr. Long’s dismissal “was pretext for being outspoken against the working conditions at the facility.”

Under federal labor law, employees have the right to take part in organizing activities and are generally entitled to complain publicly about their working conditions. The labor board’s regional office will investigate Mr. Long’s allegation, and the agency’s general counsel could bring a complaint against Amazon if the case is found to have merit.

Several labor lawyers said that winning or favorably settling a case like Mr. Long’s, something that would probably entail his reinstatement with back pay, was critical for a union in the early phases of an organizing campaign because it would put other workers at ease about coming forward.

“Firing people silences other people,” said Molly Elkin, a labor lawyer at Woodley & McGillivary. “It becomes difficult to organize. But if the employee is successful getting his job back, you’re back at square one. It’s very, very important.”

Hanan Kolko, a labor lawyer at Cohen, Weiss & Simon, said that Mr. Long’s case would hinge partly on whether Amazon was aware of his public comments and his participation in union activities when it fired him. He said the labor board would also have to consider whether the safety issue was a pretext for dismissal.

Perhaps most important, Mr. Kolko said, was determining whether the company had treated other workers similarly for comparable safety violations. Mr. Long said that some of his fellow workers had not suffered serious consequences for returning an item to a pod.

The Amazon spokeswoman said that the infraction was serious and grounds for dismissal, and that if other workers went unpunished in such cases, it might only mean the violation had not been noticed. She said that the company had offered Mr. Long a chance to appeal his firing to a panel of workers and managers, but that he had declined. Mr. Long said he had not known that he had that option.

Mr. Kolko said evidence of company hostility toward unions could bolster Mr. Long’s case. Amazon has distributed a video to managers at its Whole Foods stores on how to defuse union organizing efforts, but lawyers differed on whether that could be cited as evidence.

Source:

NYT > Economy


Author: NOAM SCHEIBER

Posted on

Fed, Dimming Its Economic Outlook, Predicts No Rate Increases This Year

WASHINGTON — The Federal Reserve said Wednesday that the United States economy was slowing more than it had previously thought and painted a far less rosy economic picture than the White House as it left interest rates unchanged and signaled little appetite for raising them again in the near future.

Jerome H. Powell, the Fed chairman, said the economy “is in a good place” in a news conference. But he and his colleagues said growth appeared to be slowing from last year, under the weight of the Trump administration’s trade war, economic slowdowns in Europe and China and fading stimulus from the Republican tax cuts of 2017.

The Fed now expects 2.1 percent growth this year, down from the 2.3 percent it forecast in December — and more than a percentage point less than the 3.2 percent growth the White House predicts. The outlook for 2020 is even more bleak, with the Fed now projecting growth of just 1.9 percent.

The downbeat assessment comes as the Fed sees signs of weakness in areas like consumer spending and business investment, which Mr. Powell said “suggest that growth is slowing somewhat more than expected.” Average monthly job growth, while strong, “appears to have stepped down from last year’s strong pace,” he added.

Mr. Powell tried to reassure markets by saying “economical fundamentals are still very strong,” but he acknowledged that recent developments both domestically and abroad were making it harder for the American economy to grow as quickly as it did last year.

“We see a situation where the European economy has slowed substantially,” he said, adding that China’s economy has also weakened.

Forecasts released at the end of the two-day meeting show the typical member of the Federal Open Market Committee now expects not to raise rates at all this year, an abrupt halt to what had been five consecutive quarters of rate increases to the current range of 2.25 to 2.5 percent. Most officials now expect a single rate increase in 2020 and none in 2021. In December, when forecasts were last released, Fed officials said they expected two rate increases this year and another in 2020.

Mr. Powell showed little concern about inflation — which has stayed below the Fed’s 2 percent target — rising to levels that would trigger an immediate rate increase in order to prevent a rapid escalation of prices across the economy.

Instead, Mr. Powell did not rule out the possibility — based on the current condition of the economy — that the central bank’s next move could be a rate cut. “The data are not currently sending a signal that we need to move in one direction or another,” he said.

By signaling it will not raise rates without a clear change in conditions, the Fed is effectively giving Mr. Trump what he wants from monetary policy, but with a twist. The president has publicly pushed Mr. Powell to stop raising rates. But if the Fed is correct and growth falls well below 3 percent this year, without a single rate increase, it will be difficult for Mr. Trump to pin the blame on Mr. Powell.

The 1.9 percent growth the Fed now expects in 2020 is down from a 2 percent forecast in December. But the projections include even worse possibilities: At least one committee member forecasts growth of only 1.6 percent for 2019. In December, the lowest forecast was 2 percent for the year.

White House officials see growth staying above 3 percent for the next few years, provided Mr. Trump can continue implementing his economic agenda, including another round of tax cuts, a $1 trillion infrastructure plan and additional deregulation.

Most private forecasters’ growth predictions for this year run closer to the Fed’s than the White House’s. That includes the chief executives of the Business Roundtable, who said in a quarterly survey released Wednesday that their expectations for sales, hiring and investment fell at the start of the year. They predict the economy will grow 2.5 percent in 2019.

The gap between White House and Fed forecasts has never been wider in the years since the Great Recession ended in 2009. The two outlooks have clashed in the past — during the terms of Presidents George Bush and George W. Bush — for fundamental reasons, said Diane Swonk, the chief economist at Grant Thornton.

“One is a forecast that is meant to be as accurate as possible and produce the best monetary policy outcomes,” Ms. Swonk said. “The other is a forecast that can’t escape political and ideological desires.”

The diverging forecasts underscore the differences in how the administration and the Fed judge both the risks to economic growth this year and the evidence that Mr. Trump’s tax cuts have fundamentally strengthened the economy.

Administration officials insist that the $1.5 trillion tax cut will continue to accelerate business investment and draw more and more workers into the labor force, accelerating growth. Mr. Trump promoted his economic plan in Lima, Ohio, on Wednesday, saying it would produce record job and wage growth.

“We just came out, another chart, we just came out with numbers, the economic report of the president, 3.1 percent G.D.P., the first time in 14 years,” Mr. Trump said, referring to data showing economic output rose 3.1 percent in the fourth quarter of 2018 from a year earlier. While the Fed expressed concern that Mr. Trump’s trade policies could drag down growth, the president said his tariffs on imported metals and Chinese goods were bringing jobs back to America.

“Everyone said you couldn’t do it, you couldn’t bring back manufacturing jobs,” he said. “You would need a magic wand. We are bringing them back beyond anybody’s expectations.”

Where the Fed Stands on Future Interest Rates

Participants of the Federal Open Market Committee have lowered their projections of interest rates in the coming years.




What each F.O.M.C. participant thinks the

target rate should be by the end of each year

Projections

made on:

Sept. 2018

Dec. 2018

March 2019

1.5

2.5

4.0

%

2.0

3.0

3.5

4.5

2019

Current

target rate

2020

2021

What each F.O.M.C. participant thinks the target rate should be by the end of each year

Projections made on:

Sept. 2018

Dec. 2018

March 2019

2019

2020

2021

4.5

%

4.5

%

4.0

4.0

3.5

3.5

3.0

3.0

2.5

2.5

2.0

2.0

Current target rate

1.5

1.5


Source: Federal Reserve

By Karl Russell

Mr. Powell said on Wednesday that it was difficult to discern the law’s permanent effects on the supply of workers and productivity.

“We hope they’re very large,” he said.

Asked about the Fed’s deviation from the White House’s economic growth projections that were released on Tuesday, Mr. Powell said he had not seen those numbers.

“The Fed underscored patience and a strong desire to allow inflation to run above target,” researchers at Bank of America Merrill Lynch said in a research note. “As Powell said in his opening remarks, the Fed’s overarching goal is to sustain the economic expansion. This unprecedented dovish turn clearly shows such commitment.”

Yields on the 10-year Treasury note — a bellwether for a range of consumer borrowing rates — dropped sharply after the Fed statement was released as investors digested the potential that the Fed could be done raising rates for some time. The yield on the 10-year Treasury fell to 2.52 percent — its lowest level since January 2018. Stocks, which had been negative for most of the day, rallied and briefly regained positive territory after the announcement. However, they lost steam in the last hour of trading, and the S&P 500 closed down 0.3 percent.

Analysts had been expecting the Fed to shift its forecasts at the meeting, but not by this much.

Eleven committee members said they do not expect any rate increases this year. Four said they expected one. None expected a rate cut. In 2020, a majority of members expected at least one rate increase, although some expected none.

Fed officials also announced that they would end an effort to slim the central bank’s massive holdings of government-backed securities in September, after slowing it down in May. The Fed accumulated $4.5 trillion worth of Treasury and mortgage-backed securities in an effort to stimulate the economy after the Great Recession. It has been slowly winnowing those holdings as the economy has recovered.

Many analysts had expected officials to announce the September end of the balance sheet wind-down, which Mr. Powell had foreshadowed in a recent speech at Stanford University. By October, the Fed said on Wednesday, officials will be shifting the composition of the balance sheet, moving out of agency debt and mortgage-backed securities and into primarily Treasury bonds.

Officials appeared to hasten to end the balance sheet reduction under pressure from financial markets. Many analysts blamed stock market volatility in December and January on the Fed’s wind-down process.

In announcing the end of the reduction, Fed officials acknowledged that they were stopping short of what many analysts had expected when the reduction began. They said the total holdings on the balance sheet once the wind-down ends “will likely still be somewhat above the level of reserves necessary to efficiently and effectively implement monetary policy.”

Carrying a larger-than-expected balance sheet — and operating with interest rates at what remain historically low levels — could hinder the Fed in battling an economic downturn in the near future.

Source:

NYT > Economy


Author: JIM TANKERSLEY