The Hill’s Morning Report — US economy shrinks, recession fears grow

One day after the Federal Reserve reminded everyone that it’s trying to slow the economy to tame inflation, the government reported that gross domestic product had indeed slowed — to the point of contraction.

Slower growth helps pull high prices downward, but zero growth induces nervous hand-wringing about recession, which is what happened on Thursday when the government said GDP in the second quarter shrank at an annual rate of 0.9 percent (The Hill and The Washington Post). In sum, it was the second consecutive quarter in which economic output appeared to hit the brakes. The upshot from one analyst: “Business definitely pulled back.”

The debate continued about what conditions define a recession and who calls it, officially (The Hill).

President Biden on Thursday offered his reassurance that the economy is not currently in a recession, based primarily on strong job creation and wages in the first half of the year. He echoed the analysis of Fed Chairman Jerome Powell on Wednesday, who repeated his view that recession, while a risk the central bank is trying to avoid, is not the problem of the moment. The problem is record inflation.

Pointing to economic indicators that look brighter than the GDP report, the president said, “That doesn’t sound like recession to me.”

Treasury Secretary Janet Yellen, an economist, waved off recession fears. “We know there are challenges ahead of us. Growth is slowing globally. Inflation remains unacceptably high, and it’s this administration’s top priority to bring it down,” she told reporters Thursday. 

But she said the country is not seeing “broad-based weakening of our economy,” also known as recession, which she said would include layoffs, business closures, strains in household finances and a slowdown in private sector activity.

Jason Furman, an economist and former White House adviser under former Presidents Clinton and Obama, told the Washington Post, “This data is much more worrisome than it was in the first quarter. I don’t think you can easily dismiss these numbers. It isn’t just volatile factors anymore. Meaningful, important parts of the economy are slowing.”

The government this morning will report on consumer spending in June, which analysts believe continued to climb during a period of higher prices (The Wall Street Journal). The Fed has raised its benchmark interest rates four times since March to try to dampen consumer demand as a tool to bring down prices. There are some signs that consumers at the lower to middle tiers of the income ladder are shifting their shopping decisions in reaction to higher prices for gasoline, food, rent and retail goods.

Conversations this week about recession risks, slower growth and prices that outpace many households’ discretionary income are woven into the Republican Party’s narrative that spending by Democrats in Congress and by the president have been responsible for current economic woes. GOP candidates have sidestepped the worldwide price pressures, energy shortages and the effects of global sanctions after Russia’s invasion of Ukraine, plus the still-troublesome supply chain bottlenecks tied to the economic hangover from the pandemic.

The president on Thursday touted a new, proposed $670 billion Senate package, which if approved by Democrats, would invest in curbing climate change, lowering prescription drug prices and boosting health care subsidies under the Affordable Care Act while raising taxes on the wealthy and corporations. Democrats are selling the budget reconciliation blueprint to voters as a form of long-term inflation relief. Republicans oppose the measure, as The Hill reports, below.

The New York Times: Democrats’ plan to fight inflation may lower costs over time.

Biden on Thursday also spent two hours and 17 minutes talking with Chinese President Xi Jinping, their fifth call since Biden took office. The focus was on tensions between the two countries over Taiwan and Xi warned the United States not to “play with fire.” 

Shi Yinhong, a professor of international relations at Renmin University in Beijing, told The New York Times that the atmosphere between the two leaders was “remarkably worse” than in March, when Biden and Xi last spoke. Neither government reported any concrete progress on the status of Taiwan and independence, which China opposes, or any of the other issues that have flared between the two powers in recent months.

▪ Reuters: Following the Biden-Xi call, Taiwan to deepen its close security partnership with the U.S.

▪ Reuters: Russia supports the “one China” policy on Taiwan, its foreign minister said today. 

Related Articles

• CNBC: Deutsche Bank is not convinced a “slam dunk” recession is underway and wants more evidence.
• The Wall Street Journal: Recession worries put the Biden administration on the defensive.
• The Wall Street Journal: China’s Xi warns Biden over Taiwan.
• CNN: Biden, Xi agree to begin arrangements for a face-to-face summit, while areas of cooperation, including on climate change, were hashed out during a Thursday discussion.

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   LEADING THE DAY

➤ CONGRESS  

It’s a waiting game on Capitol Hill as Senate Democrats look to sidestep potential minefields in their quest to pass the surprise reconciliation deal struck between Senate Majority Leader Charles Schumer (D-N.Y.) and Sen. Joe Manchin (D-W.Va.) on Wednesday.

Immediately, the GOP’s fury over the out-of-left-field deal took shape as House Republican leaders attempted to whip members against the $280 billion bill to boost domestic semiconductor production and competition with China. However, it didn’t stop the bill from passing, 243-187-1, including 24 Republicans who defied the last-minute party effort. All Democrats voted for it (The Hill). 

That maneuver followed the Senate GOP’s decision a day earlier to tank a bill aimed at helping millions of veterans who suffered exposure to burn pits while serving in the military.

However, there are other pressing questions facing the Democratic effort, including some that are unanswerable at this moment. Chief among them is whether Sen. Kyrsten Sinema (D-Ariz.) will follow the lead of her moderate colleague and back the $670 billion blueprint.

Upon leaving the Capitol, Sinema repeatedly declined to answer that question as a staffer told reporters simply that she is still reviewing the legislation and has no further comment (ABC News). Adding to the intrigue, Manchin said during a virtual press conference on Thursday that he has not talked to the Arizona Democrat.

“I would hope that she would be receptive,” Manchin said.

No Sinema decision is expected until the Senate parliamentarian gives the drug pricing portion of the bill the OK — a decision that is not expected for several days (Politico).

▪ Alexander Bolton, The Hill: Inside the secret Manchin-Schumer deal: Democrats shocked, GOP feels betrayed.

▪ The New York Times: After clash, Manchin and Schumer rushed to reset Climate and tax deal.

▪ The Wall Street Journal: Schumer lobbies Democrats to back Manchin climate, tax and health care deal.

▪ Emily Brooks, The Hill: Why two dozen House Republicans supported CHIPS despite last-minute whip.

Democrats are also facing another big unknown: COVID-19. In the last two weeks alone, Sens. Tina Smith (Minn.), Tom Carper (Del.), Manchin and Schumer have all missed time after testing positive for the virus.

That news became more problematic on Thursday as Sen. Dick Durbin (D-Ill.) tested positive, putting him out of work for at least five days and potentially longer (The Hill). Add on the continued absence of Sen. Patrick Leahy (D-Vt.), who is recovering from hip replacement surgery but available to vote if need be, and any additional positive test results could present real issues for the party to pass the bill by the end of next week. 

Assuming all Senate Republicans are in town, all 50 Senate Democrats will need to be available to vote, plus Vice President Harris to cast the tiebreaking vote. 

Politico: Splitsville: Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader Kevin McCarthy (R-Calif.) break on big votes.

Even following the CHIPS vote in the House and the Senate GOP’s burn pit bill takedown, the anger may not subside over Schumer’s Wednesday shocker. Sen. Susan Collins (R-Maine) indicated on Thursday that legislation to codify same-sex marriage is in more jeopardy now and that there is an increased lack of trust among Republicans. 

“After we just had worked together successfully on gun safety legislation, on the CHIPS bill, it was a very unfortunate move that destroys the many bipartisan efforts that are under way,” said Collins, who is the lead GOP co-sponsor of the same-sex marriage proposal (HuffPost).

Assuming everything goes right in the upper chamber, another question is what happens if the bill advances to the House by the end of next week or the week after, and whether Speaker Nancy Pelosi (D-Calif.) would haul lawmakers back to vote on the reconciliation package? Smart money says she almost certainly would. According to Bloomberg News, Pelosi is set to depart for her Asia trip on Friday that could include a stop in Taiwan.

Democrats want to get a health provisions through the Senate before the August recess because Affordable Care Act premium increases would otherwise take effect mid-month, increasing costs for many Americans during a period of inflation.

▪ The Hill: Manchin-Schumer deal could be historic win on climate change.

▪ The Hill: Manchin-Schumer deal stuns business lobby. 

▪ The Washington Post: Democrats to seek $21 billion to fight coronavirus and other outbreaks.

▪ The Hill: Veterans’ groups lash out after GOP blocks toxins bill: “I’m sick and tired of this bullshit.”

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IN FOCUS/SHARP TAKES

➤ POLITICS

Former President Trump on Thursday defended his decision to host a tournament by Saudi-backed LIV Golf at one of his courses this weekend by saying that “nobody has gotten to the bottom of 9/11.”

LIV Golf and those associated with it have come under fire for being funded by the Saudi’s Public Investment Fund. That includes Trump, who has been criticized over the past week by 9/11 families for hosting the event at Trump National Golf Club.

“Nobody has gotten to the bottom of 9/11 unfortunately, and they should have,” Trump said, labeling those who carried out the terrorist attacks “maniacs that did that horrible thing to our city, to our country, to the world.”

Fifteen of the 19 attackers on 9/11 were Saudi nationals. Trump indicated that he was aware of this in 2016, having told “Fox & Friends” in an interview that it was the Saudis who “blew up the World Trade Center” 

“Take a look at Saudi Arabia, open the documents,” he said at the time. The FBI declassified information related to the attack last year showing that the attackers received assistance from Riyadh (Axios). 

▪ The Hill: House GOP brushes off Department of Justice probe of Trump.

▪ Amie Parnes, The Hill: Biden turns up the insults on Trump.

▪ NBC News: Biden’s soft power has not been enough to stop would-be rivals from grabbing the 2024 spotlight. 

▪ Niall Stanage: The Memo: No, really — What if Rep. Alexandria Ocasio-Cortez (D-N.Y.) runs for president?

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OPINION

■ Recession or not, the recovery has ended, by Greg Ip, chief economics commentator, The Wall Street Journal. https://on.wsj.com/3vpSS5I 

■ How goes the war on inflation? by Paul Krugman, columnist, The New York Times. https://nyti.ms/3b9gQva 

WHERE AND WHEN

The House will meet at 9:30 a.m. and officially kick off the monthlong August recess at the conclusion of votes. Pelosi will hold her weekly press conference at 10:45 a.m.

The Senate convenes on Monday at 3 p.m. and will resume consideration of Elizabeth Hanes to be a district judge for the Eastern District of Virginia.

The president will receive the President’s Daily Brief at 10:15 a.m.

The vice president has no public events scheduled.

Secretary of State Antony Blinken at 9 a.m. will co-host with Commerce Secretary Gina Raimondo a ministerial meeting of the U.S.-Japan Economic Policy Consultative Committee with Japanese Foreign Minister Hayashi Yoshimasa and Japanese Minister of Economy, Trade, and Industry Haguida Koichi, followed by a press availability at noon at the State Department. Blinken and Yoshimasa will share a working lunch at 1 p.m. 

Economic indicator: The Commerce Department’s Bureau of Economic Analysis at 8:30 a.m. reports on U.S. consumer spending in June. 

The White House daily briefing is scheduled at 1:30 p.m.

⚾ At the Congressional Baseball Game for charity Thursday night at Nationals Park in Washington, GOP members of Congress triumphed over their colleagues across the aisle by a score of 10-0, making it a two-win streak for Republicans after winning 13-12 last year (Washington Examiner). Rep. Pete Aguilar (D-Calif.) was named MVP for the Democrats, while freshman Rep. August Pfluger (R-Texas) was the MVP for the Republicans, according to Fox News.

🖥  Hill.TV’s “Rising” program features news and interviews at http://digital-stage.thehill.com/hilltv, on YouTube and on Facebook at 10:30 a.m. ET. Also, check out the “Rising” podcast here.

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ELSEWHERE  

➤ INTERNATIONAL

Russian forces launched their first missile attack on the greater Kyiv area in weeks on Thursday, a move Ukraine labeled as a revenge action as the war-torn nation’s government stands up to the Kremlin. Moscow fired six missiles from the Black Sea, striking a military unit just outside of the city. In response, Kyiv counterattacked in the Russian-occupied Kherson region that was taken over in the early stages of the war (The Associated Press).

Russian Foreign Minister Sergei Lavrov said today that Moscow will soon propose a time for a call with Secretary of State Antony Blinken to discuss a prisoner exchange. His response comes days after Blinken told reporters that the Biden administration has made a “substantial offer” to win the freedom of WNBA star Brittney Griner and former Marine Paul Whelan. Both are jailed in Russia (Reuters).

➤  PANDEMIC, POX & HEALTH

The administration plans to make available in September expected new booster COVID-19 vaccine shots manufactured by Pfizer and Moderna to tackle the latest mutation of the coronavirus in circulation, The New York Times reports. Anticipating that refined booster doses are on the horizon to better target the BA.5 subvariant of omicron, the government has decided not to expand eligibility for second boosters of the existing vaccines this summer. Currently, those 50 and older and those older than 12 with certain immune deficiencies can get booster shots. The goal: encourage people to get vaccinated and boosted with the most effective shots available ahead of a possible winter surge of the virus.

Los Angeles County’s COVID-19 infection rate improved enough to avert a potential return to a mandatory indoor mask mandate this week. A county health official on Thursday said a pending plan was dropped because infections and rates of hospitalizations stabilized (The Associated Press).

San Francisco declared a public health emergency on Thursday as monkeypox cases rise in the city. Mayor London Breed’s (D) office said the declaration goes into effect on Monday and will strengthen the city’s preparedness, responses,and expedite available resources to address the virus. The city has confirmed more than 260 cases of monkeypox, making up almost a third of the nearly 800 cases in California (The Hill).

Total U.S. coronavirus deaths reported as of this morning, according to Johns Hopkins University (trackers all vary slightly): 1,029,270. Current average U.S. COVID-19 daily deaths are 364, according to the Centers for Disease Control and Prevention.

If you thought vitamin D helped strengthen your bones against breakage, think again. In the first large randomized controlled study in the U.S., researchers report that vitamin D pills taken with or without calcium have no effect on bone fracture rates. The results of the government-funded research, published Thursday in The New England Journal of Medicine, hold for people with osteoporosis and even those whose blood tests deemed them vitamin D deficient. The newest advice? Stop taking the supplements, unless you have celiac disease or Crohn’s disease, or are deprived of sunshine and may not eat enough foods that are routinely supplemented with vitamin D, such as cereals and dairy products to help them absorb calcium (The New York Times). 

➤   STATE & CITY WATCH

Washington, D.C., Mayor Muriel Bowser (D), during a Thursday news conference, asked the Pentagon to deploy 150 National Guard members per day to help manage the influx of asylum seekers sent by bus to the nation’s capital by Texas and Arizona, calling the thousands of migrants arriving in search of assistance a “growing humanitarian crisis.”

The D.C. government is also seeking the Guard’s help to transport migrants “to a temporary processing center at the D.C. Armory or another suitable federal location in the National Capital Region such as Joint Base Bolling or Fort McNair for reception and eventual onward movement to their final destinations.”

In a letter, Bowser criticized Texas Gov. Greg Abbott and Arizona Gov. Doug Ducey, both Republicans, accusing them of “cruel political gamesmanship” for what she said were decisions “to use desperate people to score political points” (WTOP).

➤   PICTURE DAY

Their portraits have traveled the country, drawing large and enthusiastic crowds nationwide before returning to the Smithsonian’s National Portrait Gallery. After more than five years as private citizens, former President Obama and former first lady Michelle Obama will be on hand Sept. 7 to help unveil a different pair of official portraits, set to hang in the White House after an event to be affectionately hosted by Biden and first lady Jill Biden (NBC News). 

THE CLOSER

And finally … 👏👏👏 Congratulations to the victors of our weekly Morning Report Quiz! 

With July coming to an end this weekend, we thought it was a good idea to see how much everyone remembered about the month that was and inquire about some current events before the calendar hits August. 

Here’s everyone who went 4/4 and deserves a big Friday pat on the back: Stanley Wasser, Pam Manges, Amanda Fisher, Terry Pflaumer, Patrick Kavanagh, Lou Tisler, Randall S. Patrick, Robert Bradley, Jack Barshay, Stephen Delano, John Donato, Barbara Coen, Peter Sprofera and Shaun Donnelly. 

They knew that Biden did not travel to Spain during the course of July (he did appear there during the end of June).

At movie theaters, “Minions: The Rise of Gru” has taken the belt as the highest-grossing film in the U.S. since the start of the month. It raked in more than $300 million since its July 1 release. 

Among the past four British prime ministers delivered by the Tories, John Major logged the longest tenure at 6 years and 156 days (slightly more than the 6 years and 64 days of David Cameron).

Finally, former third baseman Scott Rolen was not part of the 2022 Baseball Hall of Fame class inducted on Sunday (but perhaps his day is not far off).

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