The Washington Post - USA (2022-05-25)

A18 EZ RE THE WASHINGTON POST.WEDNESDAY, MAY 25 , 2022

Economy & Business

HOUSING

Home sales drop as

rates, prices rise

Sales of new U.S. single-family
homes tumbled to a two-year low
in April, probably as higher
mortgage rates and soaring
prices squeezed first-time buyers
and those in search of entry-level
properties out of the market.
New-home sales plunged 16.
percent to a seasonally adjusted
annual rate of 591,000 units last

month, the lowest level since

April 2020, the Commerce

Department said on Tuesday.

March’s sales pace was revised

down to 709,000 units from the

previously reported 763,

units.

Sales have now declined for

four straight months. New-home

sales dropped 5.9 percent in the

Northeast and tumbled 15.

percent in the Midwest. They

plummeted 19.8 percent in the

densely populated South and

decreased 13.8 percent in the

Midwest.

Economists polled by Reuters

had forecast new-home sales,

which account for a small share

of U.S. home sales, would fall to a

rate of 750,000 units. Sales

dropped 26.9 percent on a year-

on-year basis in April. They

peaked at a rate of 993,000 units

in January 2021, which was the

highest level since the end of

2006.

— Reuters

AUTO INDUSTRY

Ford settles case over

fuel-economy claims

Ford Motor Co. will pay $19.

million to resolve allegations it

falsely advertised real-world fuel

economy and payload capacity

for some hybrids and pickup

trucks, the Iowa Attorney

General’s Office said Tuesday.

The multi-state settlement

covers 2013–2014 C-Max hybrids

and 2011–2014 Super Duty

pickups. In 2013, Ford lowered

the advertised fuel economy

ratings on its C-Max hybrid by up

to seven miles per gallon and

sent checks to owners of $550 to

make up the difference in costs.

“ For years, Ford advertised

impressive fuel economy and

payload capacity for its cars and

trucks,” Iowa Attorney General

Tom Miller said. “Unfortunately,

these figures were not based in

reality.”

The settlement, with 40 states

and the District of Columbia,

prohibits Ford from making false

or misleading advertising claims

concerning the estimated fuel

economy or payload capacity of a

new motor vehicle.

Ford said it was pleased the

issue was “closed without any

judicial finding of improper

conduct. We worked with the

states to resolve their concerns

and in the process limited

additional investigative costs

and legal expenses for all

parties.”

— Reuters

DIGEST

BY MIKE DEBONIS

Oregon Rep. Kurt Schrader has
long served as a reliable ally of the
pharmaceutical industry inside
an increasingly hostile Demo-
cratic Party.
As scores of House colleagues
called for legislation that would
allow Medicare to negotiate the
prices it pays those companies —
which promised to drive down
costs at the pharmacy counter
but decimate the U.S. drug indus-
try’s roughly $550 billion in
y early revenue — Schrader was
among a small handful of Demo-
crats who pushed back, and he
played a key role last year in
narrowing his party’s efforts.
Now Schrader’s political career
is hanging by a gossamer thread
after a primary opponent, Jamie
McLeod-Skinner, made the con-
gressman’s opposition to the
Democrats’ marquee drug-pric-
ing bill a central issue in her
campaign. His potential loss has
rekindled interest on Capitol Hill
in pushing through prescription
drug legislation before the
m idterm elections, when Demo-
crats are at risk of losing their
congressional majorities and any
chance at the sort of aggressive
policy they have promised in
their campaigns since at least
2006.
“It is a wake-up call across the
country on the importance of
taking steps to hold down the cost
of medicine,” said Sen. Ron
Wyden (D), a fellow Oregonian, a
longtime advocate for Medicare
drug negotiation and the chair-
man of the Senate Finance
C ommittee.
The talk has been further fu-
eled by Democrats’ urgency to

pass legislation — any legislation

— that can address rising con-

sumer prices, as well as recent

comments from Sen. Joe Man-

chin III (D-W.Va.), who played the

leading role last year in derailing

Build Back Better, the Democrat-

ic megabill that was set to include

drug-pricing legislation along-

side climate, tax, child care and

numerous other p rovisions.

While Manchin has repeatedly

declared Build Back Better dead

since pulling the plug back in

December, he has insisted he is

still open to legislation dealing

with prescription drug prices. In

a brief interview last week, he

said drug pricing would be “the

easy lift” in any package that

comes together in the coming

months.

Appearing on Monday at the

World Economic Forum in D avos,

Switzerland, Manchin said he

saw drug-pricing legislation as a

centerpiece of any potential Dem-

ocratic bill, alongside provisions

on inflation and e nergy.

But it is Schrader’s likely loss

that has lit a fire under some

Democrats who are anxious that

it won’t just be Democratic voters

who punish them at that ballot

box this year for not fulfilling one

of their central promises.

Interviews with key Democrats

revealed a growing sense of des-

peration that action is necessary

on drug prices, especially as infla-

tion continues to weigh on the

U.S. economy and Democrats’

hopes of salvaging their majori-

ties in November. A group of 20

endangered swing-district House

Democrats all but begged Wyden

and Senate Majority Leader

Charles E. Schumer (D-N.Y.) to

pass legislation in a letter this

week.

“Just like you, we were sent to

Washington on the promise that

we’d tackle big issues and work to

improve the lives of those we

represent,” they wrote. “And what

issue do we hear about at every

town hall? At every event? The

price of prescription drugs.”

While many Democrats, in-

cluding Wyden, hesitated to sin-

gle out Schrader’s actions, they

said his election shows voters are

frustrated with the inaction —

and willing to punish those who

appear to stand in the way.

“We’ve pledged again and

again to lift this absurd restric-

tion that keeps Medicare from

negotiating to hold down the cost

of medicine,” Wyden said last

week. “I’ve had a thousand town

meetings, and the opposition to

negotiating lower prices of medi-

cine must be in the witness pro-

tection program, because I can’t

find them.”

Even the pharmaceutical in-

dustry’s critics acknowledge it

isn’t Schrader’s fault that drug-

pricing legislation was not enact-

ed. In fact, he was part of a group

of moderate Democrats who

struck a deal with more liberal

colleagues last November to ad-

vance a compromise — one that

would allow the federal govern-

ment to negotiate with drug com-

panies, but only on a limited set

of drugs.

Rep. Stephanie Murphy (D-

Fla.), who worked closely with

Schrader as a leader of the mod-

erate Blue Dog Coalition, de-

clined to comment on a circum-

stances surrounding Schrader’s

race. But she said that those on

the left flank of the party had

“mischaracterized” his views.

Last year, Schrader was among

a small group of Democrats who

refused to advance the

d rug-pricing bill endorsed by

House leadership, the Lower

Drug Costs Now Act — at one

point refusing to advance it in a

key Energy and Commerce Com-

mittee vote. That opposition, as

well as Senate opposition from

Sen. Kyrsten Sinema (D-Ariz.),

led to the narrower compromise

bill.

While it appeared that legisla-

tion had universal support

among Democrats, it was set to

move alongside several other par-

ty priorities for procedural and

strategic reasons. When Manchin

pulled the plug on the larger

package in December, drug pric-

ing fell by the wayside.

“What he worked on actually

was to help advance Democratic

values and to do so in a way that

was pragmatic that would actual-

ly become law,” Murphy said.

Without a bill passed into law,

Schrader quickly found himself

on the defensive back in Oregon.

McLeod-Skinner made Schrad-

er’s committee vote a focus of her

campaign. In a television ad, the

candidate drove a shredder over a

giant-sized novelty check with

“Big Pharma” written on it.

“Schrader has sold out to big

pharma,” McLeod-Skinner said in

the ad. “I’m running to lower

prescription drug prices.”

Voters who saw Schrader’s spot

were also seeing ads from Center

Forward, a political action com-

mittee funded by the pharmaceu-

tical industry. At the candidates’

brief televised debate, McLeod-

Skinner repeatedly chastised

Schrader for his role in the com-

mittee, saying that the pharma

donations to his campaigns

bought him off.

“He was the deciding vote

against being able to bring down

our prescription drug prices,”

McLeod-Skinner said. “All those

ads you’re seeing? That’s actually

paid for by the profits of folks

who have not seen prescription

drug prices go down.”

Onstage, Schrader argued that

he’d rescued prescription drug

reform, by offering an alternative

“that I helped develop and could

actually pass the Senate,” empha-

sizing what was a watered-down

version offered over what had

been removed.

“I’m not beholden to any phar-

maceutical company — I’ve taken

them on,” he said, citing his

efforts to combat price gouging

by some pharmaceutical compa-

nies.

Schrader, who did not respond

to interview requests, trails

McLeod-Skinner by nearly 20

points as of Tuesday, with about

three-quarters of ballots counted.

While some forecasters have

called the race for McLeod -

Skinner, the Associated Press has

not, due to thousands of uncount-

ed mail ballots.

Another test is set to come

June 7, when Rep. Scott Peters

(D-Calif.), another architect of

the narrowed drug-pricing com-

promise, faces a primary that

includes a more liberal challeng-

er, Kylie Taitano, who has at-

tacked him for his drug-pricing

efforts. Taitano, however, has

raised only a fraction of what

McLeod-Skinner has raised and

is running in an all-comers

p rimary where voters of all par-

ties, not just Democrats, will

p articipate.

Meanwhile, those already

elected are emphasizing the need

for action, and many are pitching

a drug-pricing bill as surefire

inflation fighter.

“It was one thing when people

were contending with these super

high prices for their monthly

dose of insulin, but now they’re

dealing with that, and $5 gas,

sky-high rent and food,” said Rep.

Peter Welch (D-Vt.). “In this con-

text, we actually have an obliga-

tion to start addressing the af-

fordability challenges that folks

are facing.”

The pharmaceutical industry,

meanwhile, insists Democrats’ ef-

fort continue to be misplaced.

While the compromise legisla-

tion may have unified Democrats,

it is still opposed by PhRMA, the

industry’s leading trade group,

and by virtually all Republicans.

Brian Newell, a PhRMA spokes-

man, pointed to Bureau of Labor

Statistics data showing that drug

prices have not risen amid the

rampant inflation elsewhere in

the economy and said the Demo-

cratic proposals “would provide

little relief to patients who are

struggling to afford their medi-

cines.”

“What voters need are for law-

makers to work toward common-

sense solutions that fix our bro-

ken insurance system and lower

out-of-pocket costs for patients,”

he said.

But to Democrats, the political

imperatives are clear: “We have to

do it because people need it to be

done,” Welch said. “Politically, it’s

wise to do it and political mal-

practice not to.”

Leigh Ann Caldwell and David Weigel

contributed to this report.

Oregon primary refocuses Democrats’ attention on drug pricing

○

DOW 31,928.

UP 48.38, 0.2% ○

NASDAQ 11,264.

DOWN 270.82, 2.4% ○

S&P 500 3,941.

DOWN 32.27, 0.8% ○

GOLD $1,871.

UP $17.50, 0.9% ○

CRUDE OIL $109.

DOWN $0.52, 0.5% ○

10-YEAR TREASURY YIELD 2.75%

DOWN 3.4%

CURRENCIES

$1=126.80 Y EN, 0.93 EUROS

“The ‘shiny objects’ of the mar-

ket, particularly tech stocks that

thrived during the pandemic but

have no underlying business mod-

el, have been most vulnerable,

and that vulnerability will contin-

ue,” Bahnsen said in an email.

The retail sector, meanwhile,

was pulled lower by a surprise

earnings miss from Abercrombie

& Fitch, which fell nearly 29 per-

cent. Other apparel brands sold

off in tandem; Gap and Lulu-

lemon shed 8.3 percent and

5.6 percent, respectively.

“[Wall] Street is worried about

a consumer slowdown, and this

string of bad news overnight just

added fuel to the fire for the

bears,” Wedbush Securities man-

aging director Dan Ives said.

Retail losses have been driven

largely by rising fuel and compen-

sation costs that are eating into

profits and outweighing other-

wise strong buying activity.

Best Buy reported lower sales

in its first quarter as chief execu-

tive Corie Barry cited softer de-

mand and lowered its outlook for

the year. Shares added 1.2 per-

cent, however, as the company

still managed to beat Wall Street’s

expectations, according to CNBC.

The electronics retailer is see-

ing a pullback after posting out-

size growth in the pandemic, ac-

cording to Moody’s senior vice

president Christina Boni. As con-

sumers find pay more for food and

fuel, they are cutting back on

more discretionary purchases

such as laptops and flat-screen

TVs.

Abercrombie & Fitch was hit

with a net loss of $10 million

despite seeing its strongest first-

quarter sales since 2014. The com-

pany’s 4 percent sales growth was

more than offset by inflation, as

chief executive Fran Horowitz

pointed to higher-than-expected

freight and product costs.

“Looking forward, we expect

higher costs to remain a head

wind through at least year end,”

Horowitz said in a news release.

Walmart and Target reported

similar problems last week. Wal-

mart’s revenue increased 2.4 per-

cent to $141.6 billion for the quar-

ter, but its favored measure of

profit fell nearly 0.9 percent.

Chief executive Doug McMillon

attributed the loss to higher con-

tainer and storage expenses, as

well as fuel costs that weighed on

its logistics network.

Pump prices have been elevat-

ed for weeks, after the Russian

invasion of Ukraine sent the price

of crude oil soaring. West Texas

intermediate crude, the U.S.

benchmark, stood at about $

per barrel, up about 50 percent

year to date. The national average

for a gallon of gas was nearly

$4.60 on Tuesday, according to

AAA.

“All of this basically says we’re

feeling the economic pressure of

inflation,” said Michael Farr of the

D.C.-based investment firm Farr,

Miller and Washington.

JUSTIN LANE/EPA-EFE/SHUTTERSTOCK

Traders work on the New York Stock Exchange floor. Analysts said ongoing market volatility is rooted in investor uncertainty and fears the

U.S. economy could find itself in a recession. “it will be a miracle if the country can avoid another recession,” said one economist.

BY AARON GREGG

The stock market ended a day
of choppy trading with mixed re-
sults Tuesday, with tech and retail
stocks notching steep declines,
while the Dow dug out from a
morning rout.
The Nasdaq composite index
closed down nearly 2.4 percent, or
270.83 points, to close at 11,264.
after a bleak earnings forecast
from Snapchat’s corporate parent
put a drag on tech stocks. The
broader S&P 500 index fell
0.8 percent, or 32.27 points, to
settle at 3,941.48. The Dow Jones
industrial average eked out a
modest gain of 48.38 points, or
nearly 0.2 percent, to settle at
31,928.62.
The S&P 500 stands at the prec-
ipice of a bear market, defined as a
20 percent fall from the most re-
cent high. The broad-based index
briefly went there Friday in intra-
day trading, then powered up
1.9 percent Monday in a broad
rally that also lifted the Nasdaq
1.6 percent and the Dow almost
2 percent.
Analysts said the volatility is
rooted in investor uncertainty
and fears the U.S. economy could
find itself in a recession as the
Federal Reserve signals a more
aggressive stance on interest rates
to get surging inflation under con-
trol.
Several leading economists
have sounded the alarm that ris-
ing interest rates could hurt sec-

tors of the economy. The Fed

raised its benchmark interest rate

by half a percentage point in May,

and five more increases are ex-

pected this year. Higher rates gen-

erally mean higher borrowing

costs for businesses and house-

holds. Mortgage rates have been

climbing for weeks, and in mid-

April a 30-year fixed-rate mort-

gage surged above 5 percent for

the first time since 2011.

That same month, new-home

sales fell 16.6 percent, to 591,000,

according to Census Bureau data

released Tuesday. That’s the

fourth consecutive month of de-

clines.

“Plummeting new-home sales

is what we see at the start of most

economic recessions, and it will

be a miracle if the country can

avoid another recession coming

its way,” FWDBonds chief econo-

mist Chris Rupkey said.

The tech sector posted big loss-

es Tuesday, with Snap plunging

more than 43 percent after the

messaging app maker warned it

would miss second-quarter finan-

cial targets amid eroding eco-

nomic conditions. Snap leaders

told employees Monday that the

company would rein in hiring and

spending in the face of disrup-

tions in the digital ad market, the

Wall Street Journal reported.

Spooked investors sent Meta Plat-

forms, the parent of Facebook,

down 7.6 percent, while Alphabet

dropped 5.1 percent. Netflix and

Peloton fell 3.6 percent and

7.7 percent, respectively.

David Bahnsen, a Newport

Beach, Calif.-based wealth man-

ager, said he sees parallels to the

stock market of 2000, in which

tech valuations tumbled in an

industry-wide reckoning known

as the dot-com bust.

Nasdaq tumbles

more than 2% in

choppy trading

Snap’s poor earnings

forecast precedes dives

in tech, retail stocks