Level the economy was on track
to reach before the pandemic.
Trendline of
1st qtr. 2015 to
4th qtr. 2019
Gross domestic product
Adjusted for inflation and
seasonality, at annual rates
Level the
economy was
on track to
reach before
the pandemic.
Trendline of
1st qtr. 2015 to
4th qtr. 2019
Gross domestic product
Adjusted for inflation and
seasonality, at annual rates
Economic growth slowed sharply over the summer as supply-chain bottlenecks and the resurgent pandemic restrained activity at stores, factories and restaurants.
Gross domestic product, adjusted for inflation, grew 0.5 percent in the third quarter, the Commerce Department said Thursday. That was down from 1.6 percent in the second quarter, dashing earlier hopes that the recovery would accelerate as the year went on.
Growth in consumer spending, which has helped drive the recovery, slowed to 0.4 percent, from 2.9 percent in the second quarter, and spending on goods fell sharply. Business investment also slowed.
On an annualized basis, G.D.P. rose 2 percent in the third quarter, down from 6.7 percent in the second quarter.
The slowdown was partly a result of the spread of the Delta variant of the coronavirus, which led many Americans to pull back on travel, restaurant meals and other in-person activities. More recent data suggests that people have returned to those activities as virus cases have fallen, and most economists expect significantly faster growth in the final three months of the year.
But another major restriction on growth may be slower to recede. The pandemic has snarled supply chains around the world, even as demand for many products has surged. The resulting backups have made it hard for U.S. stores and factories to get the products and parts they need. Economists initially expected the disruptions to be short, but many now expect the issues to linger into next year.
Many businesses are also struggling to find enough workers to make, sell and deliver products — another supply shortage that is holding back growth longer than economists expected.
“The economy doesn’t have a demand problem,” said Ben Herzon, executive director of IHS Markit, a forecasting firm. “It has a supply problem.”
In some cases, those supply issues are resulting in delayed deliveries, reduced selection and empty shelves. In other cases, they are resulting in higher prices: Inflation soared last spring and has remained elevated. Consumer prices rose 1.3 percent in the third quarter, slightly slower than in the prior quarter, but still well above the prepandemic rate. Prices were up 4.3 percent from a year earlier.
In government statistics, faster price increases result in slower inflation-adjusted growth: Consumers are spending just as much, but getting less in return.
The combination of faster inflation and slower growth is causing headaches for the Federal Reserve, which has indicated it expects to being pulling back support for the economy as early as next month. It is also a political problem for President Biden as he tries to push his longer-term economic agenda through Congress.
Still, the economy is in much better shape than forecasters expected for most of last year. Gross domestic product returned to its prepandemic level in the second quarter, although it has not caught up to where it would be if the pandemic had never occurred. Government aid, along with reduced spending during the pandemic, has left Americans flush with cash, which should support spending for the rest of the year.
“Supply chain disruptions together with Delta conspired to hold back growth,” said Constance L. Hunter, chief economist for KPMG, the accounting firm. “It’s a speed bump not a slowdown.”
To understand how supply-chain woes are holding back the economic recovery, look no further than auto sales.
Spending on motor vehicles and parts, adjusted for inflation, fell 17.6 percent in the third quarter, according to the government data released Thursday. The problem wasn’t that Americans didn’t want cars — it was that dealers didn’t have enough to sell them. A global shortage of computer chips led to a slump in auto production, which in turn led to a slump in sales.
When consumers can find cars to buy, they are paying more for them. Total spending on motor vehicles, not adjusted for inflation, fell 13.5 percent — still a big drop, but not quite as big as the inflation-adjusted figure. In other words, consumers were getting less for their money.
Consumer spending
Personal consumption expenditures, adjusted for inflation and seasonality. Change since the first quarter of 2015.
Consumer spending
Personal consumption expenditures, adjusted for inflation and seasonality. Change since the first quarter of 2015.
The drop in car production was big enough to drag down overall economic growth for the quarter. Gross domestic product would have risen 0.9 percent in the third quarter had it not been for the slump in auto output.
Supply-chain issues have been particularly acute in the auto sector, but they are much broader than that. Spending on other long-lasting goods also fell.
“It’s not just in autos,” said Robert Rosener, senior U.S. economist at Morgan Stanley. “There are other consumer goods that are also in short supply.”
The snarled supply chain is partly a result of the surge in spending on goods during the pandemic, as Americans bought cars instead of plane tickets, workout equipment instead of gym memberships and cooking equipment instead of restaurant meals. Those patterns have begun to reverse as the pandemic has ebbed, but not all the way. Spending on goods remains far above its prepandemic level, while services spending, adjusted for inflation, had yet to return to its prior level in the third quarter.
The spread of the Delta variant has slowed the service-sector rebound. Spending at hotels and restaurants rose just 3 percent in the third quarter, down from nearly 14 percent in the second quarter, adjusted for inflation.
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House Democrats are questioning executives of some of the world’s biggest oil and gas companies — Exxon Mobil, Chevron, BP and Shell — over allegations that the industry spread disinformation about the role fossil fuels play in global warming to derail action on climate change.
The hearings are the first time oil executives have been pressed to answer questions, under oath, about whether their companies misled the public about the reality of climate change by obscuring the scientific consensus: that the burning of fossil fuels is raising Earth’s temperature and sea levels with devastating consequences worldwide, including intensifying storms, worsening drought and deadlier wildfires.
“Today, the CEOs of the largest oil companies in the world face a stark choice,” Ro Khanna, the Democratic representative from California, who has been central to the effort to bring executives before a congressional committee, said in prepared remarks seen by The New York Times.
“You can either come clean, admit your past misrepresentations and ongoing inconsistencies, and stop supporting climate disinformation,” he said. “Or you can sit here in front of the American public and lie under oath.”
Industry executives are expected to defend their evolving statements regarding climate science, and stress that they support global action on climate, including the Paris accord — the agreement among nations to fight climate change and cut emissions of carbon dioxide — and that the oil and gas industry will play a critical role in solving the climate crisis.
“Inaction is not an option,” Suzanne Clark, president of the U.S. Chamber of Commerce is expected to say, according to prepared remarks.
House Democrats compare the inquiry with the historic tobacco hearings of the 1990s, which brought into sharp relief how tobacco companies had lied about the health dangers of smoking, paving the way for tough nicotine regulations. Climate scientists are now as certain that the burning of fossil fuels causes global warming as public health experts are sure that smoking tobacco causes cancer.
The evidence showing that fossil fuel companies distorted and downplayed the realities of climate change has been documented by academic researchers.
A Senate committee on Thursday approved a critic of the tech giants to lead the Justice Department’s antitrust division, sending his nomination to the full Senate for a final vote.
The Senate Judiciary Committee voted for Jonathan Kanter’s nomination to lead the division without taking a count of how each lawmaker voted. But one Republican senator, John Cornyn of Texas, asked to be marked down as voting against the nomination.
Mr. Kanter said during his confirmation hearing that he supported “vigorous antitrust enforcement in the technology area.” As a lawyer in private practice, Mr. Kanter has represented critics of Google, Facebook, Amazon and Apple — helping them make the antitrust case against the tech giants.
If confirmed by the full Senate, as is widely expected, he will join other critics of Silicon Valley in key antitrust positions. Lina Khan, a young legal scholar who wrote a popular critique of Amazon, leads the Federal Trade Commission. Another scholar who argues for greater antitrust enforcement against major companies, Tim Wu, holds an economic policy role at the White House.
Several lawmakers praised Mr. Kanter on Thursday, saying he was the right person to tackle problems with corporate concentration throughout the economy.
“We believe in allowing the markets to work,” said Senator Amy Klobuchar, Democrat of Minnesota. “And the markets aren’t really working really well right now for some people.’
Mr. Cornyn, who voted against the nomination, said he shared Mr. Kanter’s concerns about the tech industry but worried he would more broadly “use antitrust tools as a hammer to achieve political or social ends.”
Critics of Mr. Kanter have also questioned whether he could end up prosecuting cases he encouraged as a lawyer for competitors of the tech giants. The Justice Department has already sued Google, arguing it illegally maintained its monopoly over online search. And it is investigating whether Apple has violated antitrust laws.
As major economies grapple with higher-than-expected inflation and lingering supply chain disruptions, the European Central Bank held firm on its policy stance on Thursday. It continued its pandemic-era bond-buying program at a slightly slower pace than earlier this year and kept interest rates steady.
Last month, policymakers slowed down the pace of purchases in the bank’s pandemic-era bond-buying program, from about 80 billion euros a month. The bond purchases are one of the ways the bank keeps interest rates low, and at the time the central bank’s president, Christine Lagarde, attributed the change to an improved outlook for the economy and higher inflation expectations.
The annual inflation rate for the eurozone climbed to 3.4 percent in September, the highest in 13 years. The economy is recovering from the pandemic, but the demand for goods has disrupted supply chains. The central bank estimated that exports from the eurozone would have been almost 7 percent higher in the first half of the year without these bottlenecks — a more severe impact than for the rest of the world, which would have seen exports rise an additional 2.3 percent, Ms. Lagarde said in a speech earlier this month.
The central bank’s 1.85 trillion euro ($2.15 trillion) pandemic bond-buying program is scheduled to run until at least March, and investors are eager to know whether it will be extended or if the central bank’s older bond-buying program will be expanded to help meet the target of 2 percent inflation in the medium term. Ms. Lagarde said last month that the future of these bond programs wouldn’t be discussed until the central bank’s December meeting, when policymakers will get a new set of forecasts for economic growth and inflation.
The European Central Bank is expected to have a looser monetary stance, with lower interest rates, in place for longer than the policies of the Federal Reserve and Bank of England because its longer-term forecasts for inflation are still below the central bank’s target. In Britain, inflation is expected to rise above 4 percent, above the Bank of England’s target of about 2 percent. The bank’s governor, Andrew Bailey, has said the rate of inflation was concerning and that officials needed to prevent high inflation from becoming permanent.
As Royal Dutch Shell announced its quarterly earnings on Thursday, including a jump in profit that fell short of investors’ expectations, company executives were dealing with an activist hedge fund’s proposal that the oil giant be broken up.
Third Point, based in New York, has taken a stake in Shell worth about $750 million, according to a person familiar with the matter, and has called for it to be broken up into “multiple stand-alone companies” that could address competing shareholder interests.
These companies could include a unit encompassing Shell’s legacy oil and gas extraction businesses and another with its renewable-energy and liquefied-natural-gas activities, Third Point’s chief executive, Daniel S. Loeb, said in a letter to investors.
Mr. Loeb called Shell “one of the cheapest large-cap stocks in the world.” He also said that by most metrics, Shell was trading at a 35 percent discount to its rivals Exxon Mobil and Chevron, despite what he called “higher quality and more sustainable” business lines.
He blamed the company’s “attempting to appease multiple interests but satisfying none” for the lack of investor interest in Shell.
Mr. Loeb said pursuing a strategy like the one he suggested might lead to a reduction in carbon dioxide emissions and increased shareholder returns, “a win for all stakeholders.”
Third Point’s move recalled the successful battle waged this spring by another activist hedge fund, Engine No. 1, to install three directors on the board of Exxon Mobil with the goal of pushing it to reduce its carbon footprint.
Shell’s chief financial officer, Jessica Uhl, said on a call with reporters Thursday that the company did not have much information about Third Point’s intentions beyond the investor letter.
“We have had some very preliminary discussions with Third Point over the last year, not particularly specific,” she said. She added that Shell would “respond appropriately” after finding out more.
Ms. Uhl conceded that “we haven’t done a good enough job” in explaining Shell’s strategy for shifting to cleaner energy, which involves using the cash from oil and gas to fund new greener businesses.
Shell executives argue that as a large, well-capitalized organization with more than a century of experience delivering various forms of energy, Shell is well-placed to make multibillion-dollar investments in areas like carbon capture and storage and hydrogen that will be needed in the shift to cleaner energy.
“A very significant part of this energy transition is going to be funded by the legacy businesses that we still have,” said Ben van Beurden, Shell’s chief executive on the call. “If you want to exclude us from it, I don’t think it will go as fast as it would otherwise go,” he added.
Shell has also been under pressure to shed fossil fuel investments after a Dutch court ordered the company in May to cut greenhouse-gas emissions 45 percent by 2030 compared with 2019 levels. Shell is appealing the ruling. The company said Thursday that it would reduce emissions from operations by 50 percent by 2030, regardless of whether it won the appeal. Shell recently sold its interests in the Permian region, the prime shale drilling area in the United States, for $9.5 billion.
Shell may resist the idea of a breakup, but pressure from Third Point or others is likely to have an impact, analysts say. Most of the big European oil companies are investing in clean energy like wind and solar, as well as related businesses like electric vehicle charging, but are not being given credit by the markets for doing so, they say.
Analysts at Bernstein, a research firm, wrote that they did not think a “a full split” at Shell was imminent, but that the nudge from Third Point will “get management back on the front foot triggering their next shareholder-friendly step.”
In other words, Mr. van Beurden and his colleagues, who have laid out one of the more detailed strategies for shifting to lower carbon businesses among the large oil companies, may be prompted to do more.
Some energy companies are already making changes to appeal to investors. Eni, the Italian oil and gas company, said earlier this month that it planned to offer a separate stock market listing for its lower-carbon businesses — renewable energy, retail electric power, and natural gas — to be completed next year. The idea is to “provide investors with greater visibility of the value of the unit,” the company said.
In May the International Energy Agency said investment in new oil and gas facilities must stop in order for the world to reach net-zero carbon emissions by 2050. But Mr. van Beurden has said he is still willing to invest in what he considers the right oil and gas projects.
For instance, Shell is going ahead with an offshore drilling plan in the Gulf of Mexico and is a part-owner in a planned development of an offshore oil field west of the Shetland Islands, called Cambo, that has drawn protests.
On Thursday Mr. van Beurden suggested that the current shortfalls of natural gas in Europe and resulting record prices that have led to some factory closures were an illustration of what would happen if investments in fossil fuels are slashed before enough is done to reduce demand.
“If you just squeeze off supply and hope that demand will follow, this is what it feels like,” he said.
News of the Third Point’s interest came as Shell, Europe’s largest oil company, reported $4.1 billion in adjusted earnings for the third quarter of this year, a substantial increase over the $955 million reported in the period a year earlier, thanks mainly to higher oil and gas prices. The earnings came in below analysts’ expectations.
Emily Flitter and Michael J. de la Merced contributed reporting.
A special purpose acquisition company led by the buyout specialist Alec Gores, which announced a merger with the boutique apartment-hotel company Sonder in April, is restructuring the terms of its deal. The revised transaction will value Sonder at just over $1.9 billion, rather than $2.2 billion as originally planned, the DealBook newsletter reports.
The restructuring comes as SPACs strain under pressure. (At least, the SPACs not affiliated with former President Donald J. Trump.) Wariness of the blank-check vehicles is dragging many down below $10 per share, the price at which these companies tend to go public. This entices investors to exercise their right to redeem their shares at that price when a merger is consummated, a unique feature of the SPAC structure.
Every redeemed share means less cash available to the newly merged company. The Gores SPAC merging with Sonder has been trading just a few cents below $10 per share in recent months. The proposed business combination remains on track to close in the second half of 2021.
As part of the revised deal, affiliates of the Gores Group will contribute an additional $110 million in financing, alongside Fidelity, BlackRock and others. That’s on top of the deal’s original $200 million “PIPE” (private investment in public equity), which is a pot of money raised alongside a SPAC’s initial public offering. There’s also a new $220 million debt facility.
“The market has shifted — and we totally get that,” Mr. Gores told DealBook. “As long as you have a great company, the market is going to go in 100 different ways, and we just have to be smart enough to recognize where the market is.”
The Gores Group, a serial SPAC sponsor, has access to capital and a network that other SPACs might not, giving it the ability to shift with market conditions. Still, there are drawbacks to these adjustments: A larger PIPE means more dilution for shareholders.
“Our focus is to make sure the plan is fully funded,” said Sanjay Banker, Sonder’s president and chief financial officer. “The arithmetic in the short run is much less important.”
The hospitality firm, which reported record revenue and widening losses this month, recently opened a property in Paris as well as expanded in the Middle East and Mexico.
Food prices are surging, and food banks and pantries are struggling to keep up. To cope, they’re substituting or pulling the most expensive products, like beef, from their offerings, The New York Times’s Nelson D. Schwartz and Coral Murphy Marcos report.
The Latest on Food Prices
Nelson D. SchwartzReporting on economics
The Latest on Food Prices
Nelson D. SchwartzReporting on economics
The cost of food is soaring — and it’s changing shopping and eating habits for tens of millions of Americans. Some are skipping the most expensive items, while others are working longer hours to put food on the table.
Here’s what to know →
Responding to mounting pressure from activists, parents and regulators who believe tech companies haven’t done enough to protect children online, businesses and governments around the globe are placing major parts of the internet behind stricter digital age checks.
People in Japan must provide a document proving their age to use the dating app Tinder. The popular game Roblox requires players to upload a form of government identification — and a selfie to prove the ID belongs to them — if they want access to a voice chat feature. Laws in Germany and France require pornography websites to check visitors’ ages.
This month, lawmakers in Washington, which has lagged other world capitals in regulating tech companies, called for new rules to protect young people after a former Facebook employee said the company knew its products harmed some teenagers. They repeated those calls on Tuesday in a hearing with executives from YouTube, TikTok and the parent company of Snapchat.
The New York Times’s David McCabe reports that the changes, which have picked up speed over the last two years, could upend one of the internet’s central traits: the ability to remain anonymous. Since the days of dial-up modems and AOL chat rooms, people could traverse huge swaths of the web without divulging any personal details. Many people created an online persona entirely separate from their offline one.
But the experience of consuming content and communicating online is increasingly less like an anonymous public square and more like going to the bank, with measures to prove that you are who you say you are.
Critics of the age checks say that in the name of keeping people safe, they could endanger user privacy, dampen free expression and hurt communities that benefit from anonymity online. Authoritarian governments have used protecting children as an argument for limiting online speech: China barred websites this summer from ranking celebrities by popularity as part of a larger crackdown on what it says are the pernicious effects of celebrity culture on young people.
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Stocks on Wall Street rose on Thursday, with the S&P 500 climbing further into record territory. The benchmark rose 0.6 percent, while the Nasdaq composite was up about 0.7 percent.
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Ford led the gains in the S&P 500, climbing about 12 percent after the automaker raised its profit forecast and said it would begin paying a dividend again, noting its supply of semiconductors had improved. Ford’s profits during the latest quarter were hit by the global shortage of computer chips.
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Investors were also considering the latest economic data out of the United States. Gross domestic product grew 0.5 percent in the third quarter, the Commerce Department said Thursday, marking a slowdown in economic growth during the summer. The growth was hampered partly by supply chain bottlenecks, as well as the spread of the Delta variant of the coronavirus, which led many Americans to pull back on travel, restaurant meals and other in-person activities.
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Initial claims for state jobless benefits fell last week, the Labor Department reported Thursday. The weekly figure was about 281,000, down 10,000 from the previous week.
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The yield on 10-year U.S. Treasury notes rose to 1.56 percent on Thursday from 1.54 percent.
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Shares of Royal Dutch Shell fell more than 5 percent after the company’s quarterly earnings failed to meet investor expectations on Thursday. The report came as an activist investor, Third Point, which has taken a stake in Shell worth about $750 million, called for the oil giant to be broken up.
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Amazon and Apple are set to publish their financial performance reports after the market close on Thursday. Microsoft and Alphabet were among the best performers in the S&P 500 on Wednesday after both companies published their quarterly earnings reports on Tuesday.
SAN JOSE, Calif. — The ninth week of testimony in the fraud trial against Elizabeth Holmes raised questions of what risks and responsibilities investors have when they put money into high-growth start-ups like Theranos, Ms. Holmes’s failed blood testing company.
In past weeks of the trial, the jury heard from former Theranos employees who were alarmed by its practices, as well as executives and board members who said they were taken in by Ms. Holmes’s pitch for blood testing machines that could conduct hundreds of blood tests accurately and quickly from a drop of blood.
That built up to testimony from investors, who prosecutors said are the victims in the 12 counts of wire fraud at the heart of the trial. Before Theranos collapsed in 2018, it raised $945 million from investors, valuing it as high as $9 billion and making Ms. Holmes a billionaire.
Ms. Holmes has pleaded not guilty. If convicted, she faces 20 years in prison.
Here are the key takeaways from this week’s proceedings, which took place only on Tuesday after a water main break near the courthouse on Wednesday forced the cancellation of the day’s events.
Handpicked investors
Lisa Peterson, an investment manager at RDV Corporation, an investment firm representing Michigan’s wealthy DeVos family, explained how the group came to invest — and eventually lose — $100 million in Theranos.
RDV’s chief executive, Jerry Tubergen, met Ms. Holmes at a 2014 conference and became enthusiastic about Theranos, according to an email shown in court. Ms. Peterson, who was put in charge of researching and facilitating the investment, testified that Theranos had handpicked a few wealthy families to invest and that Ms. Holmes made the firm feel lucky to be included.
“She was inviting us to participate in this opportunity,” Ms. Peterson said. Theranos purposely sought out private investors who would not push the company to go public, a presentation shown in court said.
With Ms. Peterson’s testimony, prosecutors built on how Theranos had appeared to use fake endorsements from pharmaceutical companies to deceive its partners and investors. Theranos had shown Walgreens and Safeway executives a validation report that displayed the logos of pharmaceutical companies and said they supported its technology.
Last week, a Pfizer executive testified that the company had dug into Theranos’s technology and “come to the opposite conclusion.” Ms. Peterson said she had seen the validation report and believed it had been prepared by Pfizer, which helped entice her firm to invest.
Poor diligence
In a heated cross-examination, Ms. Holmes’s lawyers tried painting Ms. Peterson as a negligent steward of capital who did not do proper research before pouring cash into a young start-up.
Lance Wade, a lawyer for Ms. Holmes, highlighted contradictions between Ms. Peterson’s statements and an earlier legal deposition she had given. When Ms. Peterson insisted that her current testimony was accurate, he shot back, “Your memory has improved over time? Is that your testimony?”
Mr. Wade also prodded Ms. Peterson for not hiring scientific, legal and technology experts to dig into Theranos’s claims, nor did she demand to see copies of Theranos’s contracts with Walgreens and Safeway. “You understand that’s a typical thing to do in investing?” he asked.
Ms. Peterson said the firm relied on what Ms. Holmes and other Theranos executives told them.
Mr. Wade tried to diminish Ms. Peterson’s decision-making power within the firm by pointing out that she was not on RDV’s investment committee and was not present for all the meetings involving Theranos.
By arguing that investors like Ms. Peterson didn’t do enough research, Ms. Holmes’s lawyers walked a delicate line. That’s because their argument included an implied acknowledgment that Theranos’s technology did not do all that it promised, even as they also had to maintain that Ms. Holmes did not lie about the technology.
Who’s Who in the Elizabeth Holmes Trial
Erin Woo📍Reporting from San Jose, Calif.
Who’s Who in the Elizabeth Holmes Trial
Erin Woo📍Reporting from San Jose, Calif.
Elizabeth Holmes, the disgraced founder of the blood testing start-up Theranos, stands trial for two counts of conspiracy to commit wire fraud and 10 counts of wire fraud.
Here are some of the key figures in the case →
The ‘conspiracy period’
Jurors watched two videos of Ms. Holmes — most likely their first time seeing her face without a mask — as she defended Theranos in interviews after The Wall Street Journal reported in 2015 that the start-up’s blood testing machines did not do as much as claimed.
In an appearance on Jim Cramer’s “Mad Money” show on CNBC, Ms. Holmes said Theranos’s machines could do more than 100 tests, dismissing the critical report. In an interview with CBS in 2016, Ms. Holmes was more contrite, saying, “I’m the C.E.O. and founder of this company. Anything that happens in this company is my responsibility.”
Ms. Holmes’s lawyers argued to exclude the videos as evidence, at one point referring to the period of time after The Journal article as the “conspiracy period.”
Ms. Peterson testified that during that time, she and others at RDV met with Ms. Holmes. At the meeting, Ms. Holmes downplayed the revelations, Ms. Peterson said, saying The Journal’s reporting was “done by a very overzealous reporter who wanted to win a Pulitzer.”
Mr. Wade asked the court to strike that comment from the record.
