US ECONOMY & POLITICS

Russian Troops Pour Into Ukraine Breakaway Region; Germany Halts Nord Stream 2 – Wall Street Journal, 2/22/2022

• Ukrainian President Volodymyr Zelensky urged calm as Russian troops poured into the eastern Donbas region and Western nations announced measures to punish Moscow for recognizing two Russian-controlled statelets there as independent.
• Germany said it halted moves to open the Nord Stream 2 pipeline that would allow Russia to bypass Ukraine in exporting natural gas to Europe, and the European Union proposed a ban on purchases of Russian bonds, sanctions on all members of the Russian parliament who voted in favor of supporting recognition of the two breakaway regions, and an asset freeze for three Russian banks with links to the two statelets.
• In a statement Tuesday, the European Union’s two top officials said this package of measures could be added to if Russia takes further steps against Ukraine.
• The U.K. government announced a first wave of sanctions against five Russian banks and three high-net-worth individuals. Prime Minister Boris Johnson said this was the “first barrage” of sanctions against the country and that more would follow if Russia continued to push into Ukraine.
• Columns of Russian military vehicles entered Donetsk overnight, hours after Russian President Vladimir Putin made a speech questioning Ukraine’s legitimacy and recognizing the two statelets, according to witnesses and footage posted on social media.
• A senior White House official said the administration had received information that Russian troops had deployed into the Donetsk and Luhansk regions “for so-called peacekeeping functions,” adding that U.S. officials were assessing the situation.

Fed Official Leaves Door Open to Larger Rate Increase in March – Wall Street Journal, 2/22/2022

• Federal Reserve governor Michelle Bowman said Monday she had an open mind over whether the central bank should kick off interest-rate increases next month with a larger half-percentage-point rate rise.
• Ms. Bowman’s comments follow remarks at the end of last week by two of the most senior Fed officials that pushed back against the prospect of a larger rate rise at their next meeting, March 15-16.
• “I intend to support prompt and decisive action to lower inflation,” said Ms. Bowman in remarks prepared for delivery Monday at a banking conference in Palm Desert, Calif. “I will be watching the data closely to judge the appropriate size of an increase at the March meeting.”
• Since the Fed signaled at its meeting last month that it was prepared to raise interest rates next month for the first time in four years, economic data has pointed to stronger hiring, consumer spending and inflationary pressures.

Home-Price Growth Hit Record in 2021 – Wall Street Journal, 2/22/2022

• Home-price growth surged to a record in 2021, as low mortgage-interest rates prompted buyers to compete fiercely for a limited number of homes for sale.
• The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 18.8% in the 12 months that ended in December, unchanged from the prior month. The calendar-year increase was the highest since the index began in 1987.
• The Case-Shiller 10-city index gained 17% over the year ended in December, compared with a 16.9% increase in November. The 20-city index rose 18.6%, after an annual gain of 18.3% in November. Price growth accelerated in 15 of the 20 cities.
• A separate measure of home-price growth by the Federal Housing Finance Agency also released Tuesday found a 17.6% increase in home prices in December from a year earlier.
• First-time buyers are struggling to compete against cash buyers and investors. The share of first-time buyers in the market fell to 27% in January, down from 33% a year earlier, according to NAR.

U.S. Business Activity Bounces Back While Inflation Intensifies – Bloomberg, 2/22/2022

• U.S. business activity bounced back in early February from an 18-month low as a decline in Covid-19 cases rejuvenated demand, while inflationary pressures intensified.
• The IHS Markit flash composite purchasing managers index advanced 4.9 points to 56, the group reported Tuesday. In January, the measure faltered as the omicron variant restrained activities and exacerbated worker shortages.
• A measure of prices charged for goods and services rose to the highest in data back to 2009, illustrating persistent supply and demand imbalances brought on by the pandemic.
• The group’s gauge of services led the February rebound in the composite measure with a 5.5-point gain on expanding inflows of new business and stronger employment.
• The manufacturing index rose two points, reflecting firmer production, employment and orders growth.
• In a sign that transportation bottlenecks may be ameliorating somewhat, a measure of supplier deliveries at U.S. factories improved to a nine-month high. Still, shipping delays remain a challenge.

U.S. Consumer Confidence Drops to Five-Month Low in February – Bloomberg, 2/22/2022

• U.S. consumer confidence fell in February to the lowest since September as expectations for growth and financial prospects softened amid decades-high inflation.
• The Conference Board’s index decreased to 110.5 from a downwardly revised 111.1 reading in January, according to the group’s report Tuesday. Economists in a Bloomberg survey had called for a reading of 110.
• The Conference Board’s expectations index dropped to 87.5, also a five-month low, while the gauge of current conditions improved to 145.1.
• Concerns about the prospects for inflation worsened in February after easing in the prior two months, the group said. That contributed to declining confidence among Americans age 55 and over, some of whom are on fixed incomes, as well as those earning less than $35,000.
• The share of consumers who expect their incomes to rise in the next six months fell to the lowest level since January 2021. Buying plans for autos, homes and appliances also softened in February.
• Fewer Americans said they were planning to take a vacation in the coming months.

Fiscal Stimulus Is Turning Into a Fiscal Drag, in a Big Headwind for Growth – Wall Street Journal, 2/22/2022

• The federal pandemic support that helped propel the economy to blistering growth last year and put upward pressure on inflation is rapidly waning. That will weigh on consumers this year, pulling growth down though not by enough to knock the recovery off track, economists say.
• By the fourth quarter of 2021, the various Covid-19 relief packages enacted since 2020 had boosted the level of U.S. GDP by just under 6 percentage points, said David Mericle, chief U.S. economist at Goldman Sachs. Mr. Mericle estimates by the end of 2022 that boost will shrink to a little less than 2 percentage points.
• That’s equivalent to 4 percentage points of drag on economic growth compared with what would have been if pandemic programs offered the same support as in 2021.
• Goldman expects GDP to grow 2.2% in the fourth quarter of this year from a year earlier. The average of economists surveyed by The Wall Street Journal in January was 3.3%.

EUROPE & WORLD

Russian Escalation in Ukraine Raises Global Economic Risks – Wall Street Journal, 2/22/2022

• Russia’s decision to deploy troops to two breakaway Ukrainian provinces and the possibility of heightened aggression and retaliatory sanctions by the West ratchets up the risks to a global economy already reeling from snarled supply chains and some of the highest inflation in years—including soaring energy prices spurred still-higher by the tensions.
• The brunt of any economic pressure is likely to be borne by Europe, which depends heavily on Russian energy, and whose banks and companies could be caught up in sanctions.
• Those measures, while aimed at Russian entities, could raise a host of new supply-line problems for Western companies, including making it more difficult to finance purchases of commodities or send in parts to their Russia operations.
• The conflict isn’t likely to change the Fed’s calculus about whether to raise interest rates at its March 15-16 meeting. But the economic uncertainty from such a conflict is likely to weaken the case for the Fed to raise rates by a larger half-percentage-point.
• For the ECB, conflict in Ukraine makes it unlikely that the bank will accelerate an expected shift toward interest-rate hikes, given the likely negative impact on growth and confidence, said Isabel Schnabel, who sits on the ECB’s six-member executive board, in an interview with the Financial Times last week.

Inflation Creeps Into Asia—‘My Salary Is the Same, but Everything Is More Expensive’ – Wall Street Journal, 2/22/2022

• Early warning signs of inflation are appearing in some parts of Asia, as higher energy and food prices start to bite in countries that recently seemed immune to cost pressures.
• India’s inflation accelerated to 6% in January, well above the trend of around 3.6% in the three years leading up to the Covid-19 pandemic, while Sri Lanka’s inflation hit 14.2% that month, the highest in more than a decade. In South Korea, core consumer inflation recently rose to 3%, its highest level since January 2012.
• Thailand’s consumer price inflation is now 3.2%—after averaging less than 1% in the three years leading up to 2020—even though the tourism-reliant country has one of Asia’s weakest economies. Angry truck drivers recently clogged streets in Bangkok to pressure the government to lower diesel prices.
• Food prices globally rose 28.1% in 2021, according to the Food and Agriculture Organization of the United Nations. After doubling in price during 2021, U.S. West Texas Intermediate crude futures have climbed another 20% this year to around $91 per barrel.

Chinese Tutoring Companies Take Big Financial Hit Amid Crackdown – Wall Street Journal, 2/22/2022

• Three U.S.-listed Chinese education companies reported heavy losses after Beijing banned for-profit tutoring for most school-age children, showing the large financial toll of the crackdown on the industry last summer.
• New Oriental Education & Technology Group, one of the country’s largest private-education businesses, on Tuesday reported an $876 million loss for the six months to Nov. 30, compared with a net profit of about $229 million in its fiscal first half a year ago.
• The 28-year-old company incurred sharply higher operating costs and expenses due to employee layoffs and lease terminations at learning centers that it closed.
• A day earlier, TAL Education Group said it lost $99 million in the three months to Nov. 30, pushing its net loss in the first nine months of its financial year to $1.03 billion. That compared with the company’s nine-month profit of $53 million a year earlier.
• Gaotu Techedu, which specializes in online education, reported a net loss of $526 million for the nine months ended Sept. 30, a significantly larger loss than in the same period a year earlier.

Canada Lawmakers Vote to Extend Emergency Powers Targeting Freedom Convoy – Wall Street Journal, 2/22/2022

• Canada’s legislature on Monday approved extending the use of the special emergency powers invoked last week by Prime Minister Justin Trudeau to quell protests against Covid-19 mandates, which had paralyzed the capital and disrupted cross-border trade.
• A motion seeking approval of a cabinet order that invoked powers available under the country’s Emergencies Act for a full 30-day period passed Canada’s lower house of parliament by a 185-151 vote. Mr. Trudeau, who leads a minority Liberal government, received support from the country’s left-leaning New Democratic Party to extend the emergency powers.
• The extension of special powers to cope with any future demonstrations would be one of the most aggressive moves by a Western government in response to public discontent spurred by the pandemic and public-health rules.
• Over the weekend, the powers allowed police to create no-go zones, such as downtown Ottawa, and compel tow-truck drivers to remove trucks.
• Further, they granted law enforcement the power to instruct banks to freeze the financial accounts of individuals who participated in the protest, and cut off providing financial services such as auto insurance.
• Royal Canadian Mounted Police deputy commissioner Michael Duheme said the emergency measures have also choked off protesters’ financial support.
• He said financial institutions have frozen over 200 financial accounts belonging to individuals and an account held by a payment processor with a value of 3.8 million Canadian dollars, or the equivalent of $3 million. Police have also ceased transactions involving 253 cryptocurrency addresses.

Factmonster – TODAY in HISTORY

• Robert II succeeded to the throne of Scotland, beginning the Stuart dynasty. (1371)
• Spain ceded Florida to the United States. (1819)
• Calvin Coolidge made the first presidential radio broadcast from the White House. (1924)
• In a major upset, the U.S. Olympic hockey team defeated the Soviets 4–3 at Lake Placid, N.Y. (1980)