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The US. to hit $31.4 trillion debt limit today

The milestone of hitting the country’s $31.4 trillion debt cap is the product of decades of tax cuts and increased government spending by both Republicans and Democrats. But at a moment of heightened partisanship and divided government, it is also a warning of the entrenched partisan battles that are set to dominate Washington in the months to come, and that could end in economic shock.

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By Isaac OGNGA

The US Treasury Department has warned that the country will hit the $31.4 trillion borrowing cap Thursday.

Though it’s not a hard deadline, the department can still use extraordinary measures to pay the bills for another few months.

But it means the potential economic doomsday clock is officially ticking, with House Republicans still insisting on massive spending cuts before they help raise the debt ceiling and Democrats refusing to engage the idea.

Treasury Secretary Janet Yellen said last week, according to a report by POLITICO that the U.S. likely won’t run out of cash or exhaust those measures until at least early June.

Until then, the department is suspending investments in certain government retirement funds and hoping the House GOP and Democrats can come to an agreement to keep the government from careening into an economic crisis with far-reaching consequences.

But Yellen’s warning to congressional leaders hasn’t spurred any movement toward even the beginning of a deal between Congress and the White House.

The biggest legislative battle of the year is just beginning — and threatening to grow even messier than the 15-ballot speakership fight — and there’s no exit strategy in sight.

This comes even though the Biden administration and House Republicans are heading toward an initial debt ceiling deadline without even a hint of an endgame, ensuring a months-long standoff that’s poised to rattle financial markets amid worries about a recession this year.

How the U.S. economy is doing

The unemployment rate has remained low during 2022. The unemployment rate was 3.7% in November 2022. That number was the same as it was in October and is low by historical standards. 1

Real gross domestic product (GDP), often touted as a measure of the overall economy, increased in the third quarter by 2.6%, after declines in the first half of the year. Prior to that, GDP had dropped 0.6% in the second quarter and 1.6% in the first quarter of 2022.2

Orders for durable goods like machinery and equipment decreased 0.1% in the second quarter of 2022, while nondurable goods (pharmaceuticals, food, and lodging) fell by 3.7%.3

In December 2022, The Federal Reserve Open Markets Committee increased interest rates by 50 basis points, with a target range of 4.25% to 4.50%.4

The Consumer Price Index decreased by 0.1% from November to December. Prices on all items increased by 6.5% over the last twelve months, the smallest increase since October 2021.5

The stock market overall sustained growth during the previous year, but in January 2022 the S&P 500 and Nasdaq dipped significantly, and both indexes were low and erratic into March before regaining ground in April. In June the S&P 500 dipped into a bear market, 20% below its recent peak. By September, the index had gained back some of that ground but was still well below its peak.67

Jobs and Unemployment

The economy added 263,000 jobs in November 2022 as employers continued to hire steadily.8

In the monthly jobs report, the Bureau of Labor Statistics surveys how many workers businesses added to their payroll. It doesn’t count farmworkers because farming is seasonal.

Companies tend to only add workers when they have enough demand to keep them busy.

Manufacturing jobs are an essential indicator. When manufacturers start laying off workers, it’s possible the economy is heading into a recession. In April 2020, the economy lost 1.3 million jobs in the manufacturing industry. Manufacturing steadily gained jobs since then and has risen slightly above its pre-pandemic levels.

The unemployment rate was 3.7% in November 2022, near the 3.5% seen before the pandemic. Since March, the unemployment rate has hovered between 3.5% to 3.7%. Overall, there were 6 million unemployed people.1

Unemployment is a lagging indicator, which is good for confirming trends. Companies usually wait until a recession is well underway before laying off workers. It also takes a while to reduce the unemployment rate, even after hundreds of thousands of new jobs are created.

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