Plus: Elon Musk may be preparing for the next chapter in his Twitter takeover journey — court.
Why the jobs market isn’t cooling
This morning, the Labor Department reported that employers added 372,000 workers to their payrolls in June. Economists were expecting hiring to have slowed last month, as fewer workers are available or willing to take open jobs, and while consumer spending is slowing as higher interest rates, imposed by the Fed to combat inflation, take their toll.
Economists were expecting be the slowest month of hiring since President Biden took office. Instead, the numbers indicated fairly strong job growth, and was significantly stronger than average employment growth during either the Donald Trump and Barack Obama presidency. That creates a quandary for the Federal Reserve, which seems resolved to continue raising interest rates in a bid to cool the economy and stem inflation.
There are a growing number of signs that the economy is slowing down.
Demand for residential real estate has decreased, and construction of new homes is slowing. Real estate companies, including Compass and Redfin and Zillow, as well as mortgage lenders, like Wells Fargo, have laid off employees in anticipation of a housing downturn.
Key commodities are dropping, signaling a slowdown in global demand. The price of Brent crude, the global oil benchmark, dipped below $100 a barrel Wednesday for the first time since late April. Copper, which is nicknamed “Dr. Copper” for its reputed ability to diagnose global economic trends, is down more than 20 percent this year, and last week it hit a 17-month low.
Stocks are down, with the U.S. market suffering the worst first half in more than 50 years. Bonds, too, are flashing warning signals: The 10-year Treasury yield has fallen below the 2-year yield, resulting in a so-called inverted yield curve that is often associated with a recession.
Nonetheless, the job market, while slowing, continues to suggest that the economy is pretty healthy. The unemployment rate — 3.6 percent — is one of the lowest in decades. (Anything under 5 percent is considered good.) And consumer spending remains strong.
The Fed is trying to slow the economy to lower inflation, but it would like to avoid a recession. Any indication of unusual growth, especially from one as core to the economy as jobs, may prompt the Fed to continue to raise interest rates, and make a recession more likely.
“We are probably around peak inflation now,” Vincent Reinhart, a former top Fed economists, who is now a strategist at Dreyfus and Mellon told DealBook. “If your goal is to slow the economy by a good bit, you are not going to stop until you have every measure of the economy flashing recession. Only then will it be mission accomplished for the Fed.”
For full coverage of today’s jobs report, see The Times’s special briefing, which will be updated throughout the day.
HERE’S WHAT’S HAPPENING
Shinzo Abe, Japan’s longest-serving prime minister, was assassinated today in the city of Nara. As a stunned country tried to make sense of the shooting, reactions poured in, with world leaders praising Abe for his leadership. Reforms he championed helped lift Japan out of economic malaise. Follow updates from The Times here.
Match Group suspends some political donations after an abortion ruling. The operator of Tinder, Hinge and other dating sites said it would no longer give money to groups representing Republican and Democratic attorneys general. It has been among the most vocal companies in responding to a Supreme Court ruling that ended nearly 50 years of federal abortion rights, but it had come under criticism for its previous support of the Republican Attorneys General Association.
The F.D.I.C. is reportedly investigating whether marketing by the crypto broker Voyager was misleading. The banking regulator is looking into claims by Voyager that implied that clients’ funds were completely protected by the nation’s banking insurance system, which they were not, The Wall Street Journal reported. When Voyager filed for bankruptcy this week, it froze customers withdrawals, leaving the status of those accounts in limbo.
Theranos’s No. 2 is found guilty of 12 counts of fraud. The verdict for Ramesh Balwani, who helped lead the failed blood testing start-up, was more severe than the one for his ex-girlfriend Elizabeth Holmes, who led the company. Balwani and Holmes, who together pushed Theranos to soaring heights with a promise to revolutionize health care, are the most prominent tech executives to be charged with and convicted of fraud in a generation.
Mortgage rates record their largest decline since 2008. The falling rates, which were down for a second-straight week, added to fears of a recession. According to data from Freddie Mac released yesterday, the 30-year fixed rate fell to 5.30 percent, from 5.70 percent last week.
A “perilous” time for a Twitter deal?
Fresh off the news of Elon Musk’s ninth (known) child, The Washington Post dropped an article that suggested that the deal was in jeopardy. The article’s claims, which could not be confirmed by The New York Times, took Twitter and its advisers by surprise, because they did not consider the deal to be in any further peril than at any other point in recent months, writes DealBook’s Lauren Hirsch.
Musk did not respond to a request for a comment. Twitter reiterated that it intends “to close the transaction and enforce the merger agreement at the agreed price and terms.”
What The Washington Post wrote: That “Musk’s team has concluded Twitter’s figures on spam accounts are not verifiable,” citing an anonymous person familiar with the matter, and that he “is expected to take potentially drastic action.” The Post added that a “change in direction from Musk’s team” would likely come soon — though its source “did not say exactly what they thought that change would be.”
What it could mean. There are many “drastic” actions Musk could take, but as it pertains to the deal, there are two clear possibilities: He could deliver a letter to Twitter saying he is terminating the deal, and he could sue Twitter. There are no clear grounds for Musk to try to break the deal, because Twitter has publicly disclosed that roughly 5 percent of its users are bots since it went public. But he may try to claim that this disclosure is intentionally misleading, a very high bar to meet legally.
What Twitter could do next. Counter sue. It would be an uphill battle for Musk. The deal has a “specific performance clause,” which gives the company the right to sue him and force him to complete the deal so long as the debt financing he has corralled remains intact. And even if that 5 percent estimate is off, Twitter warns in its regulatory filings that the number is an estimate and that it “could be higher than we have currently estimated.” The bar for using that as grounds to get out of a deal is high.
What are the stakes? The most valuable part of Twitter right now is its acquisition agreement with Musk. Its shares are down about 24 percent since April, and trade well below the price agreed with Musk. Twitter is seeing pressure on its advertising business, has frozen hiring and is laying off some staff members. To accept less than the price it originally negotiated with Musk could expose Twitter to shareholder lawsuits.
“Until 1995, the U.S. was the world’s leader in terms of female labor force participation. Now, this host of countries that we used to think were backward in terms of gender norms have exceeded the U.S.”
— Claudia Goldin, an economist at Harvard, on how a lack of options for child and elder care, is prompting many women to forgo jobs altogether.
Is climate change making states uninsurable?
Extreme weather is changing the calculus of insurance coverage across the United States, as wildfires and floods leave property owners scrambling in California, Florida and Louisiana. But insurers are mostly overseen by the states, so there is no big-picture perspective on how climate risks are manifesting nationally. The U.S. Treasury is embarking on that statistical analysis for the first time.
“There are growing indications of insurance market stress in areas of the country vulnerable to climate change impacts,” a Treasury spokeswoman told DealBook. But to develop a national understanding, officials need “consistent, comparable data at a granular level,” she said. And they are not quite sure how to get that yet.
Federal officials are asking state regulators for help. In a recent email to local officials from the Federal Insurance Office, shared with DealBook by a source familiar with the effort, the Treasury’s insurance arm asked states what data they had on homeowner coverage, liabilities and losses by ZIP code over the past five years. For now, the insurance arm said it was “assessing how to timely gather relevant, reliable data.” But depending on responses, which are expected next week, it may have to turn to companies next.
Risk experts are keenly aware of rising climate costs. The number of natural disasters causing $1 billion or more in damages has grown steadily for more than 15 years, notes a new report from the consultancy Deloitte. It surveyed 27 state regulators, more than half of whom expect climate risks for insurers to continue climbing. “With losses mounting, insurers can no longer avoid or postpone addressing the impact of changing climate,” the report states, adding that regulators must ensure that companies are predicting and managing that exposure. The Center for American Progress, a think tank, recently called on regulators to identify and mitigate insurance industry climate risks, saying “the full severity and scope of the problem is difficult to determine” partly because of insufficient data.
Still, climate action just got more fraught. Last week’s Supreme Court decision limiting the Environmental Protection Agency’s ability to regulate carbon emissions was celebrated by many conservative lawmakers, but “growing risk from climate is already stressing insurers,” said Carolyn Kousky, the executive director of the Wharton Risk Center. “Now would be the time for insurance companies to be more vocal and create political pressure to act.”
THE SPEED READ
Tom Ford, a luxury fashion brand, is exploring a sale. (Bloomberg)
The investment firm General Atlantic is reportedly working on a plan to go public. (Bloomberg)
Spirit Airlines again puts off a vote on Frontier’s offer as it mulls JetBlue’s.
Biden will sign an executive order on abortion access. (NYT)
“With Roe Overturned, Austin’s Loss Could Be Brooklyn’s Gain” (NYT)
China’s finance ministry is considering a $220 billion stimulus package. (Bloomberg)
Best of the rest
Why South Korea can’t quit Internet Explorer. (NYT)
How Big Tech became hated by Republicans. (Slate)
There were unbelievable bargains on Wish, the troubled internet dollar store start-up, but many of them weren’t real. (NYT)
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