Government Affairs Roundup
“Your Timely Roundup of Local, State, and Federal Updates”

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Interesting jobless claim numbers to report today as inflation and supply chain talks ramp up. Read below as well for more on electric vehicle incentives in Illinois and a special invite for those looking to expand outside the country.

*Government Affairs Roundup brought to you by Silver Cross Hospital*

Weekly Job Claims Hit a Low and Inflation Pressures
New applications for unemployment benefits, a proxy for layoffs, declined to a seasonally adjusted 293,000 last week from 329,000 a week earlier, the Labor Department said. It marked the first week since the Covid-19 pandemic began in March 2020 that jobless claims fell below 300,000. A proxy for the number of people receiving unemployment benefits also fell to the lowest level since March 2020.

A separate Labor Department report showed steady inflation pressures. The producer-price index for final demand—a gauge of prices that suppliers are charging businesses and other customers—rose 8.6% in September from a year earlier. That was the largest 12-month advance since the series began in 2010.

Last month’s increase was driven by rising gasoline prices, but also reflects more expensive meat, vegetables, residential electric power and chemicals. The more closely watched consumer-price index rose 5.4% in September from a year earlier, matching the largest annual gain since 2008, the Labor Department said this week.

The latest jobs market data point to a constrained supply of workers. The report showed that the number of continuing unemployment claims, a proxy for those receiving benefits through state programs, was 2.6 million in the week ended Oct. 2, a pandemic low. “A big drop in unemployment claims…is the strongest evidence yet that the Covid-19 Delta wave has lost its influence on layoffs,” said Robert Frick, corporate economist at Navy Federal Credit Union, in a note.

Layoffs are easing from last year’s high levels as companies hold on to workers they have and attempt to fill positions amid strong demand. Job openings reached a record high this summer, though eased some in August. Americans are quitting their jobs at historically high rates, a sign of worker confidence in the job market. About 4.3 million employees quit their jobs in August, the highest for records tracing back to 2000, according to the Labor Department.

A record 4.3 million workers quit their jobs in August, led by food and retail industries
Workers left their jobs at a record pace in August, with bar and restaurant employees as well as retail staff quitting in droves, the Labor Department reported Tuesday.

Quits hit a new series high going back to December 2000, as 4.3 million workers left their jobs. The quits rate rose to 2.9%, an increase of 242,000 from the previous month, which saw a rate of 2.7%, according to the department’s Job Openings and Labor Turnover Survey. The rate, which is measured against total employment, is the highest in a data series that goes back to December 2000.

Quits have been seen historically as a level of confidence from workers who feel they are secure in finding employment elsewhere, though labor dynamics have changed during Covid-19 crisis. Workers have left their jobs because of health concerns and childcare issues unique to the pandemic’s circumstances.

A total of 892,000 workers in the food service and accommodation industries left their jobs, while 721,000 retail workers departed along with 534,000 in health care and social assistance.

“As job openings and hires fell in August, the quits rate hit a new series high, surging along with the rise in Covid cases and likely growing concerns about working in the continuing pandemic,” said Elise Gould, senior economist at the Economic Policy Institute.

Covid cases have since been on the decline nationally, though some health care professionals worry about another rise during the colder months.

Job openings also declined sharply in August as hiring fell.

Employment vacancies fell to 10.44 million during the month, a drop of 659,000 from July’s upwardly revised 11.1 million, according to the department’s Job Openings and Labor Turnover Survey. Federal Reserve officials watch the JOLTS report closely for signs of slack in the labor market.

The total fell well short of market expectations for 10.96 million openings, according to FactSet.

“There is an enormous labor shortage in the country right now and it is not just because people are quitting or have childcare problems or can’t get to work due to the Delta variant,” wrote Chris Rupkey, chief economist at Fwdbonds. “The economy is strong as a bull, that is why there is a tremendous demand for labor.”

The job posting rate fell to 6.6% in August from 7% in July. That level was just 4.4% a year ago as the economy was still struggling to escape the Covid downturn.

Hires declined by 439,000 for a month in which nonfarm payrolls increased by 366,000. The hires rate fell to 4.3% from 4.6%, due largely to a plunge in leisure and hospitality. The sector, which took the hardest pandemic hit, saw hiring decline by 233,000, sending the rate down to 7.9% from 9.5% in July.

Government hiring also fell sharply during the month, down to 1.4% from 2.2%.

The JOLTS data runs a month behind the nonfarm payrolls report but still carries weight at the Fed. Central bank officials are mulling whether to begin pulling back the unprecedented policy help they provided during the pandemic and are expected later this year to slow monthly bond purchases.

However, Fed officials have said they will not begin increasing interest rates until the labor market firms up.

What you need to know about the supply chain bottlenecks
Supply chain snarls and labor shortages are driving prices higher and creating shortages as the economy struggles to adapt to a new phase of the coronavirus pandemic.

After slashing prices and laying off workers at the onset of COVID-19, manufacturers, suppliers and retailers have struggled for months to meet the quick rebound in demand unleashed by unprecedented federal aid and highly effective coronavirus vaccines.

Consumer prices rose 0.4 percent in September and 5.4 percent in the 12 months leading into it, according to data released Wednesday by the Labor Department. Much of the September jump came from rising food, energy and shelter prices — an economically challenging mix for Americans with tight budgets and a politically toxic combination for President Biden and Democrats.

Deepening backlogs at ports and worker shortages at nearly every point in the supply chain have also left shelves depleted of popular products — just as Americans begin planning out their holiday purchases. “The demand is there. There’s close to $2 trillion in savings sitting in household accounts, the American consumer is flush with cash and ready to move back towards what we might consider normal modes of consumption,” said Joe Brusuelas, chief economist at audit and tax firm RSM.

While the Biden administration is scrambling to ease the problem, Brusuelas warned that only time will fully normalize supply lines. “At this point there’s not much that the federal government can do to what can accurately be described as a behavioral shock,” he said.

Here’s what you need to know about the supply chain challenges.

New habits die hard
Many economists believed the burst of inflation seen earlier in the year would quickly fade as supply chains kicked back into gear and workers came back into the labor force with the pandemic well under control. But as the delta variant caused a global resurgence in COVID-19 cases, supply chains buckled again while demand chugged along.

Brusuelas said that COVID-19 outbreaks in northeast and southeast Asian shipping and manufacturing hubs caused shutdowns similar to those during the onset of the pandemic in early 2020. Declines in energy production, as well as port and factory closures driven by surging cases, have severely limited the ability to meet recent demand.

“The issues around the supply chains are not driven exclusively by consumption, but rather by ports that are not open 24 hours a day, a lack of labor specifically within the trucking industry, to move goods from ports to warehouses to stores, and the lack of labor and the warehouses themselves, which are also not open 24 hours a day,” Brusuelas said.

Meanwhile, U.S. consumers have continued to spend, but not evenly across the economy. While online stores, mega-retailers and furniture sales have benefited from the delta-driven shift, surging cases made it difficult for nearly every industry to hire enough workers to handle rising demand.

Employment growth fell from nearly 1 million jobs in July to 366,000 in August and 194,000 in September, leaving businesses scrambling to fill more than 10 million vacant positions. Though some economists expected the September lapse of federal unemployment benefits to fill the void, the recent jobs report confirmed the pandemic’s inherent curb on the economy.

“These are all COVID-restriction related or COVID-disruption related things, and until we let all of that work out, this is not going to go away,” said Norbert Michel, a vice president at the Cato Institute, a libertarian think tank.

Holiday shopping season at risk
The persistent supply chain issues and worker shortages are not expected to be permanent features of the post-pandemic economy, but will likely take several months to fix. That means Americans can expect to pay more for their holiday spreads and have trouble finding certain gifts in time for December celebrations.

“I know you’re hearing a lot about something called supply chains and how hard it is to get a range of things from a toaster to sneakers to bicycles to bedroom furniture,” Biden said in remarks Wednesday before meeting with business and labor leaders. “With the holidays coming up, you might be wondering if gifts you planned to buy will arrive on time,” he said.

Analysts have stressed for months that Americans should knock off their shopping lists quickly to ensure gifts will arrive by the middle of December — and expect to pay more for them.

Chad Moutray, chief economist at the National Association of Manufacturers, said some companies have even purchased their own ships or flown in components of products to avert port backlogs and a lack of container space.

“All of that leads to higher prices. Much of that can be passed on to the consumer, but the overall cost of production here is going up pretty phenomenally, largely because of all the extra costs related to shipping but also to being able to navigate some of these supply chain issues,” Moutray said.

Food producers and suppliers have also boosted prices as they struggle to work through a range of obstacles, including processing plant closures, trucking shortages and volatility within the restaurant and bar sector.

The consumer price index (CPI) for food rose 0.9 percent in September, making up more than one-fourth of the total monthly increase in inflation. The index for food at home rose 1.2 percent last month as prices for basic staples rose sharply.

Meat, poultry and fish prices rose 2.2 percent in September, with beef, bacon, ham and fresh fish rising by more than 2 percent each. “Sometimes it’s a processing issue, sometimes it’s a labor issue, sometimes it’s an import issue — it’s a variety of things as we sort of recover from the pandemic and the shock that it provided globally to the food system,” said Agriculture Secretary Tom Vilsack in a Tuesday interview with WAMU, the NPR affiliate in Washington, D.C.

“People were a little bit surprised at some of the increases that they saw,” he continued. “I think we’re going to see a moderation of that, which is good. And from time to time there may be a shortage here or there, but I don’t think people can be prevented from being able to feed their families nutritious food.”

Few easy fixes
Just hours before the release of the September inflation data, the White House announced that Walmart, FedEx and UPS will increase operations to 24 hours a day, seven days a week to keep goods moving. The administration also said the Port of Los Angeles will adopt a similar schedule and that labor leaders are willing to make sure enough workers are on the job to handle the load.

Business groups are urging Congress to provide more funding for job training programs and allow for more temporary visas to fill vacant trucking jobs and other open positions. One of the best ways to make that happen, they argue, is through the $1 trillion bipartisan infrastructure bill that would establish an advisory board to encourage women to enter the trucking industry and set up an apprenticeship program for truck drivers under the age of 21, in addition to revamping roads and bridges.

Others have called on Biden to activate the National Guard to help alleviate supply chain congestion and incentivize states to use the Guard or open up U.S. Navy ports to help unload cargo. Even so, economists and business groups say it could take several months to see an impact on prices and shipping times as the country adjusts to life amid the evolving pandemic.

“Individuals are reassessing their professional careers and their lives following what is a shock that is equal to global wars or depressions that we all know from history,” Brusuelas said. “Until we achieve a level of confidence within the public that they can go back to work, that they can go back to the stores, that they can attend social events without the risk of contracting disease, we’re just going to be in this strange nether world where we’re short of workers.”

House Speaker Nancy Pelosi suggests Democrats could cut major pieces of Biden’s economic plan
Democrats could slash entire pieces of President Joe Biden’s economic plan to push it through Congress, House Speaker Nancy Pelosi suggested Monday.

Party leaders have acknowledged they will likely have to cut $1 trillion or more from their $3.5 trillion social safety net and climate proposal. Trying to pass legislation with a razor-thin majority and no Republican votes, Democrats have to appease centrists who have called for a smaller bill.

The dilemma has left lawmakers deciding how to cut costs, either by scaling back programs or scrapping some altogether. On Monday night, Pelosi signaled her party could opt to remove some policies from the proposal entirely while keeping others fully intact.

“In order to pass both the Build Back Better Act and the Bipartisan Infrastructure Bill on time, it is essential that difficult decisions must be made very soon,” she wrote to House Democrats, referencing the two planks of Biden’s agenda.

She continued: “Overwhelmingly, the guidance I am receiving from Members is to do fewer things well so that we can still have a transformative impact on families in the workplace and responsibly address the climate crisis: a Build Back Better agenda for jobs and the planet For the Children!”

Pelosi did not say which pieces of the proposal could get cut, though she implied climate policy would remain a priority. The decision to scrap any part of the plan could affect the benefits millions of Americans would see from the legislation for years to come. Asked Tuesday morning about whether Democrats would drop entire programs from the proposal, Pelosi responded, “We hope not.”

The plan as first outlined would expand childcare, paid leave and Medicare. It would extend enhanced household tax credits, create universal pre-K and make two years of community college free. It would also encourage the adoption of green energy and the construction of climate-resilient buildings and infrastructure, through tax credits and other incentives.

As Democrats try to pass the legislation in the coming weeks, any effort to cut costs will come with significant tradeoffs. Speaking to reporters Tuesday, Pelosi said an enhanced child tax credit, expanded childcare and universal pre-K “really go together.”

The party has had to tread carefully to move forward with both planks of Biden’s agenda. The House had to delay approval of the Senate-passed bipartisan infrastructure bill after progressives threatened to vote against it until the Senate takes up Democrats’ bigger plan.

Democrats aim to pass their larger bill through budget reconciliation, which allows legislation to get through the Senate with a simple majority. Still, the party cannot afford any defections in the Senate and can lose only three votes in the House.

Cutting programs to win over centrists such as Sen. Joe Manchin, D-W.V., could risk support from progressives. For instance, Senate Budget Committee Chairman Bernie Sanders, I-Vt., has championed Medicare expansion.

Governor Pritzker’s push to steer electric vehicle investment to Illinois
Gov. J.B. Pritkzer is making a huge bet on the electric-vehicle manufacturing industry, unveiling an incentive package worth hundreds of millions of dollars that may be the largest in state history. Included are a wide range of tax breaks, from payroll credits and exemption from utility and some sales taxes, to assistance with job training and favored treatment in obtaining government permits and road construction funds.

Pritzker wants the much-anticipated package approved in the General Assembly’s two-week fall veto session, which opens next Tuesday, Oct. 19. The package is aimed at keeping Ford’s Chicago assembly plant and Stellantis’ similar Belvidere facility in operation—and poised to win as the American auto industry races to convert from gasoline-powered to electric vehicles.

It’s also intended to lure new companies to the state, big and small, but especially Samsung, which is weighing bids from Illinois and Ohio to build an enormous battery factory that officials here want to go across the road from electric truck producer Rivian in downstate Normal and reportedly could employ as many as 7,500 workers.

The Pritzker camp has been signaling much of the summer that a big proposal was on the way, one that they believe builds on the recently approved green-energy package. It certainly is big—especially for a state government entirely run by left-leaning Democrats.

“Time is of the essence. We know companies now are making decisions that will have implications for decades,” Andy Manar, deputy governor for economic development, told me in a phone interview. “We have to make our best efforts to show them that Illinois is the best place for their business.”

The proposal, to be introduced in bill form in the next few days, is the product of months of discussions with industry leaders and, more recently, legislative leaders including state House Speaker Emanuel “Chris” Welch and state Senate President Don Harmon. The latter haven’t yet committed, but “they understand the timing,” after Ford Motors last announced billions of dollars in electric-vehicle facilities in Tennessee and Kentucky, facilities which received hundreds of millions of dollars in incentives from each state, Manar said.

Illinois Manufacturers’ Association President Mark Denzler termed the package “a very good step forward.” Some further discussions are necessary, he added, but the plan, if approved, will help Illinois compete for the type of facilities that have been going elsewhere.

The centerpiece of Pritzker’s plan is a refundable state income tax credit of 75% or 100% of withholding from workers at electricity manufacturing and supply plants, for up to 15 years. The larger, 100% figure would apply to newly hired workers at a facility located in an “underserved area” of the state. Belvidere, the South Side Ford plant and Normal all are located in underserved areas.

Companies also would get refundable credits of 25% or 50% of withholding from current workers, if a minimum number of net new employees was added. For a large manufacturer, that would be at least 500 new jobs created over a 60-month period, paired with a capital investment of at least $1.5 billion.

Other incentives:
• Training costs would be eligible for an income-tax credit, 25% in some cases and 50% in underserved areas.

• A sales tax exemption would be granted to qualifying companies on their purchase of building materials. They’d also be exempt from state utility taxes on electricity and natural gas.

• Half to 75% of taxes on wages of construction workers who build EV facilities would be waived.

• The state will establish a tax force to study ways to expedite permits and promises to prioritize any needed road construction.

Asked directly if the incentives are enough for Illinois to compete, Manar replied, “That will be determined.” He added, “We listened to the stakeholders.” Credit recipients would have to report on diversity in hiring and on their board composition and outline a plan to boost hiring of minorities.

One thing not in the package is relief from local property taxes. Sources say Chicago Mayor Lori Lightfoot objected to doing that at a time when she’s raising property taxes to pay for pension costs. That possible break will have to be “the subject of broader discussion,” Manar said.

As is the case with the incentives for data farms that Pritzker pushed through the Legislature, the EV package would require contractors building electric-vehicle facilities to reach labor peace agreements with local unions. But there is nothing in the package now that would apply to people who work in the plant after construction.

The manufacturers’ Denzler said he’d like to see both property tax relief and something to lower utility bills in the package. The latter is particularly important to battery manufacturers such as Samsung that have high power demands in the manufacturing process.

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Mike Paone
Vice President – Government Affairs
Joliet Region Chamber of Commerce & Industry
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