said it is cutting 13% of staff, or nearly 700 jobs, the latest technology company to say it needed to reduce costs ahead of choppy economic conditions.
Confirming an earlier report by The Wall Street Journal, Lyft co-founders
John Zimmer
and
Logan Green
announced the cuts to staff Thursday. “There are several challenges playing out across the economy. We’re facing a probable recession sometime in the next year and ride-share insurance costs are going up,” they wrote in the memo viewed by the Journal.
“We worked hard to bring down costs this summer: we slowed, then froze hiring; cut spending; and paused less-critical initiatives. Still, Lyft has to become leaner, which requires us to part with incredible team members,” they added.
The ride-hailing company has more than 5,000 employees, which don’t include its drivers. Lyft laid off 60 people, or under 2% of its workforce, in July. In May, it said it planned to slow hiring and reduce the budgets of some of its departments.
Technology companies large and small have been announcing hiring freezes or staffing cuts this year after many hired at a breakneck speed through the pandemic and now confront a tougher economic outlook. This week,
Amazon.com Inc.
told employees it is pausing corporate hiring and payments startup Stripe Inc. said Thursday that it is laying off about 14% of its employees. Both blamed the harsh economic climate for their decisions.
San Francisco-based Lyft also said that it would sell its vehicle service centers and that most of that team is expected to receive roles from the acquiring company, which it didn’t name. Lyft has centers in nine markets.
The company maintained its third quarter and 2024 earnings outlook but said it expects to incur $27 million to $32 million in restructuring related to Thursday’s layoffs in this year’s fourth quarter. The company posts third-quarter results Monday.
Lyft shares have underperformed the broader market over the past 12 months. Through Wednesday’s close, its stock was down 71% from a year ago while the tech-heavy Nasdaq Composite Index was down 33%.
Rival
Uber Technologies Inc.’s
diversified business, which includes global rides operations and a food-delivery arm that became its lifeline during the pandemic, has fared better with Wall Street. Its stock is down about 37% in the past year.
In May, Uber said it would slow hiring. Both companies have struggled with a driver shortage over the past year, an imbalance that has pushed ride fares to record highs. Uber said active drivers and riders returned to prepandemic levels for the first time in this year’s third quarter.
Write to Preetika Rana at preetika.rana@wsj.com and Emily Glazer at emily.glazer@wsj.com
Russia said Saturday that it would suspend participation in the export of agricultural products from Ukrainian ports, in response to an attack on the occupied Black Sea port of Sevastopol that it blamed on the government of Ukraine.
The Defense Ministry said in a statement published on Telegram that ships of the Black Sea Fleet and civilian ships involved in ensuring the security of the so-called grain corridor had come under attack. As a result, “the Russian side suspends participation in the implementation of agreements on the export of agricultural products from Ukrainian ports,” the statement said.
The move threatens to derail the United Nations brokered deal that unblocks Ukraine’s vital grain exports through the Black Sea, which is critical to addressing a global hunger crisis and comes a day after U.N. chief
António Guterres
urged Russia and Ukraine to renew the agreement, which is officially set to expire on Nov. 19.
Officials from Russia, Turkey, Ukraine and the U.N. signed the grain agreement in July, freeing millions of tons of food products that had been bottled up in the country since the Russian invasion began in February.
The agreement is one of the few diplomatic breakthroughs of the war and helped to bring the global price of wheat down to prewar levels, helping to ease a global hunger crisis that resulted in part from the conflict. Ukraine provided about 10% of the world’s wheat before Russia invaded.
If shipments of Ukrainian grain are halted, the suspension will likely drive up the global price of wheat, corn and other vital food products.
But Russia’s Foreign Ministry said that Ukraine’s armed forces used “the cover of a humanitarian corridor” to launch massive air and sea strikes and as a result Moscow “cannot guarantee the safety of civilian dry cargo ships participating in the Black Sea Initiative and suspends its implementation from today for an indefinite period.” It said appropriate instructions have been given to Russian representatives at the Joint Coordination Center in Istanbul, which controls the transportation of Ukrainian food.
A Turkish official said Turkey hasn’t been officially notified of Russia’s decision to suspend its participation in the deal. Turkish President Recep
Tayyip Erdogan
helped broker the deal.
Oleksandr Kubrakov,
Ukraine’s minister of infrastructure, said his country will continue supplying grains around the world. “The world should not be held hostage to Russia’s whims, hunger cannot be a weapon,” he said in a Tweet.
Russia’s decision to suspend it is also a major blow to Ukraine’s globally important agriculture industry, which returned to a nearly prewar level of grain exports earlier this month, largely due to the deal. Since the agreement was signed, Ukraine exported 9.2 million tons of food products through a safe corridor in the Black Sea, according to the United Nations.
Russian President
Vladimir Putin
has threatened to abandon the deal in recent months, arguing that not enough of Ukraine’s wheat was going to poorer nations and that not enough Russian food and fertilizers were being exported due to sanctions. Around one-quarter of the food shipped through the deal went to low-income countries, according to the U.N. Ukraine also has shipped wheat to crisis-stricken nations including Somalia, Afghanistan and Yemen under the agreement.
Stéphane Dujarric,
a spokesman for the U.N. secretary-general, on Saturday said, “We’ve seen the reports from the Russian Federation regarding the suspension of their participation in the Black Sea Grain Initiative following an attack on the Russian Black Sea Fleet. We are in touch with the Russian authorities on this matter.”
“It is vital that all parties refrain from any action that would imperil the Black Sea Grain Initiative which is a critical humanitarian effort that is clearly having a positive impact on access to food for millions of people around the world,” said Mr. Dujarric.
In Luch, a village near the Kherson front line, a resident plays with her dog in the basement where she has been living during the war.
Photo:
Virginie NGUYEN HOANG for the Wa
Volunteers distribute humanitarian aid in the village.
Photo:
Virginie NGUYEN HOANG for the Wa
When asked about how Russia’s decision would affect the operation of the grain corridor, a representative of the Joint Coordination Center referred to Mr. Dujarric’s statement.
Ukraine’s foreign minister said in a tweet, “We have warned of Russia’s plans to ruin the Black Sea Grain Initiative. Now Moscow uses a false pretext to block the grain corridor which ensures food security for millions of people. I call on all states to demand Russia to stop its hunger games and recommit to its obligations.”
A worker at a Ukrainian power plant repairs equipment damaged in a missile strike.
Photo:
sergei supinsky/Agence France-Presse/Getty Images
The remains of a house in the southern village of Luch, which has suffered frequent shelling.
Photo:
Virginie NGUYEN HOANG for the Wa
Ukraine President
Volodymyr Zelensky
accused Russia earlier this month of deliberately slowing the passage of vessels through the corridor, creating a backlog of more than 170 vessels waiting to transit. The corridor’s capacity is limited by the number of inspectors from Russia, Turkey, Ukraine and the U.N. who must check each ship as it enters and exits the Black Sea.
Russian Defense Ministry spokesman Lt. Gen. Igor Konashenkov said nine aerial drones and seven maritime drones were involved in Saturday’s attack. He said the air attacks were repelled, but a sea minesweeper, the Ivan Golubets, sustained minor damage, as did some defensive infrastructure in Yuzhnaya Bay, one of the harbor bays in Sevastopol.
“You could hear explosions coming in from the sea,” said Yevgeni Babalin, a dockworker at the Port of Sevastopol. “There are fears that the Admiral Makarov was hit by an underwater drone.They shot at it from the ship and from a helicopter.”
The Admiral Makarov, a frigate, replaced the Moskva as the Black Sea Fleet’s flagship after the latter was attacked earlier this year.
A broker in Odessa who arranges cargoes from Sevastopol to the Middle East said the situation at the port was tense with residents asked to stay inside by Russian authorities.
Mikhail Razvozhayev, the Russian-installed governor of Sevastopol, wrote on his Telegram messaging channel that the attack had caused minimal damage to civilian infrastructure but city services were put on alert. He appealed to residents of the city not to publicize videos or information of the attack that could aid Ukrainian forces “to understand how the defense of our city is built.”
Ukrainian officials haven’t claimed responsibility for previous blasts in Crimea, including a drone strike on the headquarters of the Black Sea Fleet in August, but rejoiced and vowed to reclaim the peninsula annexed by Russia in 2014.
Crimea has served as a rear base for Moscow’s military occupation of a swath of territory in southern Ukraine, where Kyiv’s forces are now seeking to dislodge Russian forces from part of the Kherson region.
Gen. Sergei Surovikin, the recently appointed commander of Russian troops in Ukraine, has acknowledged that the position in Kherson is challenging and that “difficult decisions” might be called for, without elaborating.
Russian-installed officials in Kherson began telling residents to leave the city earlier this month in what they said was preparation for a Ukrainian assault.
Kirill Stremousov,
deputy head of the Kherson region’s Russian-installed administration on Friday said the evacuation of civilians was complete.
Meanwhile, the Russian Defense Ministry spokesman accused the British Navy on Saturday of being responsible for sabotaging Nord Stream pipelines in late September. Western governments have found that explosions rocked Nord Stream and a parallel pair of pipelines, Nord Stream 2. Investigations are continuing. Some German officials have said they are working under the assumption that Russia was behind the blasts.
The U.K. Defense Ministry said in a tweet on Saturday: “To detract from their disastrous handling of the illegal invasion of Ukraine, the Russian Ministry of Defence is resorting to peddling false claims of an epic scale. This invented story, says more about arguments going on inside the Russian Government than it does about the west.”
—Alistair MacDonald and Costas Paris contributed to this article.
Write to Ann M. Simmons at ann.simmons@wsj.com, Jared Malsin at jared.malsin@wsj.com and Isabel Coles at isabel.coles@wsj.com
are among the tech heavyweights featured in a packed week of earnings that investors will probe for indicators about the broader economy.
Other tech companies scheduled to report their latest quarterly reports include Google parent company
Alphabet Inc.
and
Microsoft Corp.
Investors also will hear from airlines such as
Southwest Airlines Co.
and
JetBlue Airways Corp.
, automotive companies
General Motors Co.
and
Ford Motor Co.
, and energy giants
Chevron Corp.
and
Exxon
Mobil Corp.
Nearly a third of the S&P 500, or 161 companies, are slated to report earnings in the coming week, according to FactSet. Twelve bellwethers from the Dow Jones Industrial Average, including
Boeing Co.
and
McDonald’s
Corp., are expected to report as well.
The flurry of results from a broad set of companies will give a sense of how businesses are faring as they deal with inflation denting consumer spending, ongoing supply-chain challenges and a stronger dollar.
People awaited the release of Apple’s latest iPhones in New York last month. The company will report quarterly results on Thursday afternoon.
Photo:
ANDREW KELLY/REUTERS
One area holding up to the challenges has been travel. Several airline companies have reported that consumers still have an appetite to spend on trips and vacations. On Friday,
American Express Co.
raised its outlook for the year in part because of a surge in travel spending.
“We expected the recovery in travel spending to be a tailwind for us, but the strength of the rebound has exceeded our expectations throughout the year,” American Express Chief Executive
Stephen Squeri
said.
In addition to airlines reporting, companies such as car-rental company
Hertz Global Holdings Inc.
and lodging companies
Hilton Worldwide Holdings Inc.
and
Wyndham Hotels & Resorts Inc.
will offer reads into leisure spending.
Overall, earnings for the S&P 500 companies are on track to rise 1.5% this period compared with a year ago, while revenue is projected to grow 8.5%, FactSet said.
Other companies will serve as a gauge for how consumers have responded to higher prices and whether they have altered their spending as a result.
Coca-Cola Co.
and
Kimberly-Clark Corp.
on Tuesday and
Kraft Heinz Co.
on Wednesday will show how consumers are digesting higher prices.
Mattel Inc.,
set to report on Tuesday, will highlight whether demand for toys remains resilient. Rival
Hasbro Inc.
issued a warning ahead of the holiday season.
United Parcel Service Inc.
will release its results on Tuesday and provide an opportunity to show how it is faring ahead of the busy shipping season. The Atlanta-based carrier’s earnings come weeks after rival
FedEx Corp.
warned of a looming global recession and outlined plans to raise shipping rates across most of its services in January to contend with a global slowdown in business.
Results from credit-card companies
Visa Inc.
and
Mastercard Inc.
will offer insights into whether inflation has finally put a dent in consumer spending after both companies reported resilient numbers last quarter.
Wireless carrier
T-Mobile US Inc.’s
numbers on Thursday will give more context to mixed results from competitors
Verizon Communications Inc.
and
AT&T Inc.
AT&T
issued an upbeat outlook on Thursday after its core wireless business exceeded the company’s expectations, whereas Verizon on Friday said earnings tumbled as retail customers balked at recent price increases.
Other notable companies lined up to report include
Stocks ended the first full week of the earnings season on a strong note Friday, pushing the Dow Jones Industrial Average
DJIA,
+2.47%,
S&P 500
SPX,
+2.37%
and Nasdaq Composite
COMP,
-0.81%
to their strongest weekly gains since June. It gets more hectic in the week ahead, with 165 S&P 500 companies, including 12 Dow components, due to report results, according to FactSet, making it the busiest week of the season.
The bar for earnings was set high last year as the global economy reopened from its pandemic-induced state. “Fast forward to this year, and earnings are facing tougher comparisons on a year-over-year basis. Add in the elevated risk of a recession, still hot inflation, and an aggressive Fed tightening cycle, and it is of little surprise that the sentiment surrounding the current 3Q22 earnings season is cautious,” said Larry Adam, chief investment officer for the private client group at Raymond James, in a Friday note.
“We have reason to believe the 3Q22 earnings season will be better than feared and could become a positive catalyst for equities just as the 2Q22 results were,” he wrote.
Read: Stocks are attempting a bounce as earnings season begins. Here’s what it will take for the gains to stick.
Better-than-feared earnings were credited with helping to fuel a stock-market rally from late June to early August, with equities bouncing back sharply from what were then 2020 lows before succumbing to fresh rounds of selling that, by the end of September, took the S&P 500 to its lowest close since November 2020.
While earnings weren’t the only factor in the past week’s gains, they probably didn’t hurt.
The number of S&P 500 companies reporting positive earnings surprises and the magnitude of these earnings surprises increased over the past week, noted John Butters, senior earnings analyst at FactSet, in a Friday note.
Even with that improvement, however, earnings beats are still running below long-term averages.
Through Friday, 20% of the companies in the S&P 500 had reported third-quarter results. Of these companies, 72% reported actual earnings per share, or EPS, above estimates, which is below the 5-year average of 77% and below the 10-year average of 73%, Butters said. In aggregate, companies are reporting earnings that are 2.3% above estimates, which is below the 5-year average of 8.7% and below the 10-year average of 6.5%.
Meanwhile, the blended-earnings growth rate, which combines actual results for companies that have reported with estimated results for companies that have yet to report, rose to 1.5% compared with 1.3% at the end of last week, but it was still below the estimated earnings growth rate at the end of the quarter at 2.8%, he said. And both the number and magnitude of positive earnings surprises are below their 5-year and 10-year averages. On a year-over-year basis, the S&P 500 is reporting its lowest earnings growth since the third quarter of 2020, according to Butters.
The blended-revenue growth rate for the third quarter was 8.5%, compared with a revenue growth rate of 8.4% last week and a revenue growth rate of 8.7% at the end of the third quarter.
Next week’s lineup accounts for over 30% of the S&P 500’s market capitalization, Adam said. And with the tech sector accounting for around 20% of the index’s earnings, reports from Visa Inc.
V,
+1.68%,
Google parent Alphabet Inc.
GOOG,
+0.94%
GOOGL,
+1.16%,
Microsoft Corp.
MSFT,
+2.53%,
Amazon.com Inc.
AMZN,
+3.53%
and Apple Inc.
AAPL,
+2.71%
will be closely watched.
Away from the backward-looking numbers, guidance from executives on the path ahead will be crucial against a backdrop of recession fears, Adam wrote, noting that so far guidance has remained resilient, with the net percentage of companies raising rather than lowering their outlook remaining positive.
“For example, the ‘Summer of Revenge Travel’ was known to benefit the airlines, but commentary from United
UAL,
+3.56%,
American
AAL,
+1.86%
and Delta Airlines
DAL,
+1.34%
suggests demand remains strong for the months ahead and into 2023. Ultimately, the broader based and better the forward guidance, the higher the confidence in our $215 S&P 500 earnings target for 2023,” Adam said.
The soaring U.S. dollar
DXY,
-0.89%,
which remains not far off a two-decade high set at the end of last month, also remains a concern.
See: How the strong dollar can affect your financial health
“While the degree of the impact depends on the blend of costs versus sales overseas and how much of the currency risk is hedged, a stronger dollar typically impairs earnings,” Adam wrote.
WASHINGTON—Eleven of the world’s largest banks and brokerages will collectively pay $1.8 billion in fines to resolve regulatory investigations over their employees’ use of messaging applications that broke record-keeping rules, regulators said Tuesday.
The fines, which many of the banks had already disclosed to shareholders, underscore the market regulators’ stern approach to civil enforcement. Fines of $200 million, which many of the banks will pay under the agreements, have typically been seen only in fraud cases or investigations that alleged harm to investors.
But the SEC, in particular, has during the Biden administration pushed for fines that are higher than precedents, saying it wants to levy fines that punish wrongdoing and effectively deter future potential harm. The SEC’s focus on record-keeping is likely to be extended next to money managers, who also have a duty to maintain written communications related to investment advice.
Newsletter Sign-up
Markets
A pre-markets primer packed with news, trends and ideas. Plus, up-to-the-minute market data.
Last month, the SEC alleged that hedge-fund manager Deccan Value Investors LP and its chief investment officer failed to maintain messages sent over
Apple
iMessage and WhatsApp. In some cases, the chief investment officer directed an officer of the company to delete their text messages, the SEC said. The claims were included in a broader enforcement action, which Deccan settled without admitting or denying wrongdoing.
The Wall Street Journal reported last month that the settlements announced Tuesday were likely to top $1 billion and would be announced before the end of September.
Eight of the largest entities, including Goldman Sachs and Morgan Stanley, agreed to pay $125 million to the SEC and at least $75 million to the CFTC. Jefferies will pay a total of $80 million to the two market regulators, and
Nomura
NMR -1.20%
agreed to pay $100 million. Cantor agreed to pay $16 million.
The SEC said it found “pervasive off-channel communications.” In some cases, supervisors at the banks were aware of and even encouraged employees to use unauthorized messaging apps instead of communicating over company email or other approved platforms.
“Today’s actions—both in terms of the firms involved and the size of the penalties ordered—underscore the importance of recordkeeping requirements: they’re sacrosanct. If there are allegations of wrongdoing or misconduct, we must be able to examine a firm’s books and records to determine what happened,” said SEC Enforcement Director
Gurbir Grewal.
Bank of America, which faced the highest fine from the CFTC, had a “widespread and long-standing use of unapproved methods to engage in business-related communications,” according to the CFTC’s settlement order. One trader wrote in a 2020 message to a colleague: “We use WhatsApp all the time, but we delete convos regularly,” according to the CFTC.
One head of a trading desk at Bank of America told subordinates to delete messages from their personal devices and to communicate through the encrypted messaging app Signal, the CFTC said. The head of that trading desk resigned this year, although the bank was aware of his conduct in 2021, the CFTC said.
At Nomura, one trader deleted messages on his personal device in 2019 after being told the CFTC wanted them for an investigation, the agency said. The trader made false statements to the CFTC about his compliance with the records request, the regulator said.
Broker-dealers have to follow strict record-keeping rules intended to ensure regulators can access documents for oversight purposes. The firms settling with the SEC and CFTC admitted their employees’ conduct violated those regulations.
JPMorgan Chase
& Co.’s brokerage arm was the first to settle with the two market regulators over its failure to maintain required electronic records. JPMorgan paid $200 million last year and admitted some employees used WhatsApp and other messaging tools to do business, which also broke the bank’s own policies.
Regulators discovered that some JPMorgan communications, which should have been turned over for separate enforcement investigations, weren’t collected because they were sent on employees’ personal devices or apps that the bank didn’t supervise.
said it plans to raise shipping rates by an average of 6.9% across most of its services starting in January as the delivery giant copes with a global slowdown in business.
The rate increase is higher than previous years and comes days after the company slashed its profit and sales forecasts. FedEx and rival United Parcel Services Inc. raised shipping rates by an average of 5.9% for 2022—the first time in eight years that either had strayed above 4.9%.
Inflation in the U.S. has been hovering near four-decade highs. Energy prices have declined in recent weeks, though they are still above year-ago levels. FedEx offsets some of those costs with fuel surcharges.
The company is raising rates as it and other carriers are suddenly stuck with excess capacity. Ocean freight rates have plunged during what is typically the industry’s peak season after cargo owners shipped holiday goods early and inflation dented consumer demand.
The average number of packages FedEx handled daily in the quarter ended Aug. 31 fell 11% from the prior year. Increases in fees such as fuel surcharges helped boost FedEx’s revenue despite the decline in volumes. However, operating expenses weighed on the company’s profit margins.
FedEx’s rate move was announced Thursday as part of its first-quarter earnings report, which showed profit fell 20% from a year earlier and that it was planning additional cost cuts. The company said it expects to generate between $2.2 billion and $2.7 billion in savings this fiscal year from a plan announced last week to park aircraft, suspend Sunday deliveries and close some offices. It also plans to wring an additional $4 billion in annual costs from its operations over the next two years.
FedEx’s results were released before market close on Thursday, about 90 minutes ahead of schedule, which a company spokeswoman said was the result of a technical glitch.
Shares in FedEx closed trading up less than 1%.
FedEx Chief Executive
Raj Subramaniam,
who took over from founder
Fred Smith
on June 1, is likely to face questions from analysts about how early initiatives to make its delivery networks more efficient have fared. Activist investor D.E. Shaw Group has pushed FedEx to boost profits, and Mr. Subramaniam, who previously served as FedEx’s operations chief, has pledged to make the operating structure more efficient and increase profit margins.
FedEx said Thursday it expects to save this fiscal year between $1.5 billion and $1.7 billion in its Express business by reducing flight frequencies and parking aircraft. It expects to save up to $500 million in its Ground business from closing sorting operations and stopping some Sunday deliveries. It expects to cut up to $500 million from overhead, such as closing FedEx Office and corporate office locations.
FedEx customers and industry observers are looking for details about the company’s next cost-cutting moves and whether they will affect shipping prices and services ahead of its peak delivery season, a period that starts around Thanksgiving and ends in mid-January. The company has roughly 547,000 full- and part-time employees and about 6,000 contractors with its FedEx Ground delivery business.
Delivery companies, including FedEx,
UPS,
the U.S. Postal Service and
Amazon.com Inc.,
are slated to handle about 92 million parcels a day in the time frame that corresponds with the holiday-shopping season, but they have the capacity to handle about 110 million parcels, said
Satish Jindel,
president of research firm SJ Consulting Group.
Carriers worked to increase package-handling capacity in earlier months of the pandemic as businesses dealt with a jump in online purchases. A pullback in online orders occurred faster than carriers and many retailers expected.
Walmart Inc.
and
Target Corp.
sounded alarms this spring that their stores and warehouses were holding too much inventory after they stepped up orders to avoid supply-chain delays at the same time that demand slowed rapidly.
CEO Raj Subramaniam is contending with the challenge of boosting productivity while cutting costs at FedEx.
Photo:
PHOTO: Houston Cofield for The Wall Street Journal
FedEx Express, the company’s biggest unit by revenue, flies time-critical packages overnight for customers. The spending slowdown and order reductions meant customers didn’t need to pay as frequently for fast air-shipping. FedEx Express revenue in the August quarter was about $500 million lower than it planned, the company said.
“I think the problem is with the market, not FedEx, in that people had unreasonably high expectations at how sustainable and how sticky the pandemic gains were,” said
Ravi Shanker,
a transportation-industry analyst at Morgan Stanley.
The prospects of package carriers having excess capacity could limit the pricing power that they wield and enable shippers to ask for lower rates. Jack King, a denim-apparel maker in Bristol, Tenn., said his firm, L.C. King Manufacturing, used to ship solely with FedEx Ground because the delivery giant helped his company diversify from being solely a wholesaler to becoming an e-commerce retailer too. “It brought us to the dance,” Mr. King said.
But the increases in fuel and peak delivery surcharges were too much for his daily operations of shipping more than 100 packages. Stamps.com, a partner of both USPS and UPS, helped his company save $4.50 per package, according to Mr. King. “We were stunned by how much cheaper it was,” he said.
A FedEx spokeswoman declined to comment.
SHARE YOUR THOUGHTS
Can FedEx survive this economic slowdown? Join the conversation below.
FedEx’s plan to adjust to weaker levels of demand may mean lower levels of seasonal hiring. Ahead of the peak season, carriers typically hire thousands of people to handle higher parcel volumes, bringing on more drivers and extending hours in their sortation facilities. Last year, FedEx said it planned to add 90,000 seasonal workers.
The delivery giant may have limited flexibility in reducing its costs on drivers in the months ahead. FedEx Ground contractors have been asking for more compensation to help with higher fuel and wages since the start of this year. Ground contractors are typically small businesses that hire their own drivers and buy their own trucks to deliver packages on their allocated routes. Amazon earlier this month said it would raise pay and introduce some new benefits for its drivers.
Some investors have called for the company to consolidate its Ground and Express businesses into one unit, a move that Mr. Smith, who now serves as executive chairman, had long resisted. Each FedEx unit operates as an independent business with its own CEO.
Company executives have said they plan to integrate some operations between Express and Ground that provide overlapping service, but said that there are limitations. Certain Ground facilities, for instance, aren’t equipped to handle air cargo. Ground also relies on independent contractors, while Express owns the planes it uses and directly employs its staff.
As inflation climbs in the U.S., rising food and energy costs have pushed the nation’s most popular price index to its highest level in four decades. WSJ’s Gwynn Guilford explains how the consumer-price index works and what it can tell you about inflation. Illustration: Jacob Reynolds
President Joe Biden announces a federal student loan relief plan that includes forgiving up to $20,000 for some borrowers and extending the payment freeze at the White House on Aug. 24.
Photo:
Bonnie Cash – Pool via CNP/Zuma Press
Well, he did it. Waving his baronial wand, President Biden on Wednesday canceled student debt for some 40 million borrowers on no authority but his own. This is easily the worst domestic decision of his Presidency and makes chumps of Congress and every American who repaid loans or didn’t go to college.
The President who never says no to the left did their bidding again with this act of executive law-making, er, breaking. The government will cancel $10,000 for borrowers making less than $125,000 a year and $20,000 for those who received Pell grants. The Administration estimates that about 27 million will be eligible for up to $20,000 in forgiveness, and some 20 million will see their balances erased.
But there’s much more. Mr. Biden is also extending loan forbearance for another four months even as unemployment among college grads is at a near record low 2%. Congress’s Cares Act deferred payments and waived interest through September 2020, but
Donald Trump
and Joe Biden have extended the pause for what will now be nearly three years.
The Administration is claiming, again, that this will be the last extension and is needed to help borrowers prepare to resume payments. But even if the Administration lets the forbearance end in December, about half of borrowers won’t have to make payments since their debt will be canceled.
Most of the rest will only make de minimis payments because Mr. Biden is also sweetening the income-based repayment plans that Barack
Obama
expanded by fiat. Borrowers currently pay only up to 10% of discretionary income each month and can discharge their remaining debt after 20 years (10 if they work in “public service”).
Democrats said these plans would reduce defaults. They haven’t. Federal student debt has ballooned because many borrowers don’t make enough to cover interest and principal payments, so their balances expand. Student debt has nearly doubled since 2011 to $1.6 trillion, though the number of borrowers has increased by only 18%.
Now Mr. Biden is cutting undergrad payments to a mere 5% of discretionary income. The government will also cover unpaid monthly interest for borrowers so their balances won’t grow even if they aren’t paying a penny. This will mask the cost to taxpayers of the Administration’s rolling loan write-off. Student-loan debt won’t appear to swell even as it does. What a fabulous accounting trick.
The Penn Wharton Budget Model estimates that canceling $10,000 for borrowers earning up to $125,000 will cost about $300 billion. The Pell grant addition could increase this by as much as $270 billion. The four-month freeze on payments will cost $20 billion on top of the roughly $115 billion it already has.
The payment plan revisions could eventually add hundreds of billions of dollars more. An analysis commissioned by the Trump Education Department estimated that taxpayers would lose $435 billion on federal student loans, largely because borrowers in these payment plans on average were expected to repay only half of their balances. Now they will repay even less.
Worse than the cost is the moral hazard and awful precedent this sets. Those who will pay for this write-off are the tens of millions of Americans who didn’t go to college, or repaid their debt, or skimped and saved to pay for college, or chose lower-cost schools to avoid a debt trap. This is a college graduate bailout paid for by plumbers and
FedEx
drivers.
Colleges will also capitalize by raising tuition to capture the write-off windfall. A White House fact sheet hilariously says that colleges will “have an obligation to keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford.” Only a fool could believe colleges will do this.
***
It’s important to appreciate that there has never been an executive action of this costly magnitude in peacetime. Not Mr. Obama’s immigration amnesties, not his Clean Power Plan, not Mr. Trump’s border-wall fund diversion. Nothing comes close to this half-trillion-dollar or more executive coup.
Congress authorized none of Mr. Biden’s loan relief and appropriated no funds for it. Progressives say the Higher Education Act of 1965 lets the Education Secretary “compromise” (i.e., modify) student debt. But the Federal Claims Collection Act of 1966 sets very limited terms and strict procedures for such “compromise.”
Even Mr. Biden said in December 2020 it was “pretty questionable” whether he had authority to cancel debt this way. The Supreme Court recently underscored in West Virginia v. EPAthat Congress must provide clear authorization to agencies taking action on major questions. Canceling so much debt is beyond major to a mega-ultra-super question.
With the cancellation precedent, progressives will return to this vote-buying exercise every election year. The only antidote will be if Democrats conclude this gambit boomeranged politically by mobilizing an opposition coalition of Americans who are tired of being played for saps by progressives. The test arrives in November.
Journal Editorial Report: It insults the millions who paid their loans back (05/01/22). Images: Getty Images for We The 45 Million Composite: Mark Kelly
met with the leaders of Turkey and the United Nations on Thursday to discuss food shipments from Ukraine and the increasingly tense situation at the Zaporizhzhia nuclear plant, as Ukraine continued to hit Russian logistics with artillery strikes.
Following the meetings in the western Ukrainian city of Lviv, Mr. Zelensky said he pressed U.N. Secretary-General
António Guterres
about the nuclear plant, which Russia has occupied since the early days of the war. Explosions around the plant in recent days have knocked one reactor off the power grid and sparked fears of a nuclear catastrophe.
“Particular attention was paid to the topic of Russia’s nuclear blackmail at the Zaporizhzhia NPP,” Mr. Zelensky wrote on social media. He said the two men also discussed allegations that Ukrainian citizens were being forcibly deported to Russia and the treatment of captured Ukrainian soldiers.
Newsletter Sign-up
The 10-Point.
A personal, guided tour to the best scoops and stories every day in The Wall Street Journal.
Russia has said Ukrainian forces threaten the nuclear plant’s security.
After meeting with Turkish President
Recep Tayyip Erdogan,
Mr. Zelensky said they had discussed ways to protect Ukrainian grain that is being exported, as well as other security issues. Ankara helped broker with the U.N. a deal to lift a Russian naval blockade on Ukrainian exports, which had led to food shortages throughout the Middle East and Africa.
“This is a strong message of support from such a powerful country as Turkey,” Mr. Zelensky wrote on Telegram.
The Turkish president has sought to position himself as a mediator in the war, with Turkey hosting two rounds of unsuccessful peace talks between Ukraine and Russia. Mr. Erdogan has said he hopes the U.N.-backed initiative that led to the resumption of Ukraine’s Black Sea grain exports earlier this month could be a starting point for a broader peace between Russia and Ukraine.
At a news conference following the talks, he said he had “reiterated our support for the sovereignty and territorial integrity of Ukraine.” He added: “I have been preserving my belief that the war would come to an end at the negotiation table.”
Ukraine has exported 622,000 tons of grain and other food products from the three ports covered by the export agreement, the Turkish defense ministry said Thursday.
During the news conference, Mr. Guterres said “there is no solution to the global food crisis without insuring full global access to Ukraine’s food products and Russian food and fertilizer.” Global wheat prices, he said, have fallen up to 8% since the accord was signed.
Turkish military officers are helping to monitor implementation of the agreement alongside their Ukrainian and Russian counterparts and U.N. officials stationed at a control center that was set up in Istanbul in July. Four more ships loaded with agricultural products sailed from Ukrainian ports on Wednesday under the deal, according to Turkish officials.
Mr. Erdogan is increasingly posing as a friend to both sides in the Ukraine conflict. Turkey has delivered weapons to Ukraine, including armed drones that have been instrumental in Ukraine’s battle against the Russian invasion. In February, Turkey also invoked its rights under an international treaty to bar additional Russian warships from the Black Sea.
The leaders of the United Nations and Turkey met with Ukrainian President Volodymyr Zelensky in western Ukraine on Thursday. The group discussed food shipments and rising tensions at the Zaporizhzhia nuclear plant. Photo: Handout/AFP/Getty Images
His visit to Ukraine comes less than two weeks after a visit to Russia where he held talks on the Ukraine war and the grain initiative with Russia’s President
Vladimir Putin.
“This will be another opportunity for Mr. Erdogan to be active in this mediation process,” said
Aydin Sezer,
a former diplomat who served in Turkey’s embassy in Moscow. “Erdogan is now the only person who is credited by the Kremlin when it comes to Ukrainian business.”
Turkish and Ukrainian officials also signed a memorandum of understanding calling for Turkey to participate in Ukraine’s postwar reconstruction. The first project being considered under the agreement is the reconstruction of a bridge connecting Kyiv with the towns of Irpin and Bucha, where Russian soldiers carried out mass killings in March, the Ukrainian presidency said.
“Turkey is our strategic ally. We are grateful to our Turkish partners for their willingness to cooperate in the recovery of the infrastructure destroyed by Russia,” said Ukraine’s Infrastructure Minister
Oleksandr Kubrakov
according to the Ukrainian president’s office.
Earlier on Thursday, the Ukrainian military’s Southern Command said that it had struck an ammunition depot in the village of Bilohirka, near the front line of fighting in the Kherson region. The rocket strike is the latest in a series of attacks that have targeted logistics in the Russian-occupied south—part of a strategy to starve Russian troops in the region of supplies and force them to withdraw from the territory they are holding west of the Dnipro River.
Unidentified civilians exhumed from a mass grave after Russia’s occupation of Bucha, near Kyiv, were reburied Wednesday.
Photo:
Evgeniy Maloletka/Associated Press
Emergency workers preparing for a potential nuclear disaster in Zaporizhzhia took part in a presentation watched by Ukrainian officials.
Photo:
Justyna Mielnikiewicz/MAPS for The Wall Street Journal
A day earlier, the Ukrainian military posted video to social media that appeared to show the aftermath of a long-range rocket strike on Nova Kakhovka, also in the Kherson region. And on Tuesday, pro-Ukrainian saboteurs destroyed an ammunition depot in Crimea, which Russia seized in 2014. Video on social media Thursday also showed large explosions overnight in Russian-occupied Amvrosiivka, in the eastern Donetsk region; Ukrainian officials didn’t immediately comment on the cause.
As Ukrainian strikes inside Russian-held territory increase, Russian forces are attempting to crack down on pro-Ukrainian insurgents. A Ukrainian army veteran was arrested in the Kherson region on suspicion of sending locations of Russian troops and bases to Ukrainian forces, Russian state-run news agencies reported on Thursday. In addition, Russia’s FSB intelligence agency on Wednesday said it had detained six Russian citizens in Crimea who belonged to a cell that spread what it called terrorist ideology with the support of Ukrainian emissaries, according to Russian state news agency RIA Novosti.
Russia has said it would give International Atomic Energy Agency inspectors access to the Zaporizhzhia nuclear plant—but only if they come via Russian-controlled territory and not through Kyiv, a plan that Ukraine opposes.
The Russian Defense Ministry on Thursday said Ukraine was planning a false flag provocation for Friday at the plant to frame the occupying forces. Maj. Gen.
Igor Konashenkov,
a Russian Defense Ministry spokesman, didn’t provide evidence to support the claim. The Russian-installed head of the occupied territories of Zaporizhzhia, meanwhile, said a plan was in place to evacuate residents in case of an attack on the plant. Kyiv didn’t immediately respond to the claim.
Russia’s Defense Ministry also said Thursday that Moscow would consider shutting down the plant if the situation surrounding the facility continues to deteriorate.
The Ukrainian government, international nuclear-power watchdogs and the plant’s staff have accused Russia of stealing Zaporizhzhia’s power by severing its connection to Ukraine’s remaining territory.
In Kharkiv, in northeastern Ukraine, a Russian missile hit a residential building in the Saltivka neighborhood on Wednesday night, killing seven people and injuring at least 17 more, according to the city’s mayor. More missiles launched from Russia hit the city early Thursday morning, killing two more people. Russia’s Defense Ministry said its forces were targeting foreign fighters.
Russia’s Defense Ministry said Thursday it has deployed three MiG-31 combat jets armed with hypersonic Kinzhal ballistic missiles to the Russian exclave of Kaliningrad, a chunk of Russia wedged between North Atlantic Treaty Organization members Lithuania and Poland, according to Russian state news agencies. Such missiles, when fired from jets, have farther reach than the ground-launched missiles already deployed in Kaliningrad.
—Nikita Nikolaienko contributed to this article.
Ukrainian fighters took part in a military drill on the country’s south coast.
, maker of Tide detergent and Pampers diapers, is predicting the slowest sales growth in years as consumer belt-tightening is beginning to hit household staples.
The outlook comes after the Cincinnati-based consumer-products giant on Friday reported its biggest annual sales increase in 16 years because of the price increases that it placed on mainstays from toothpaste to toilet paper.
P&G’s organic sales, a closely watched metric that strips out deals and currency moves, rose 7% for the year ended June 30, the most since 2006. Shoppers paid substantially higher prices.
But consumers are beginning to cut back amid mounting inflation, executives said. They are using up products they stockpiled during the pandemic or holding off on replenishing supplies. Sales volumes declined 1% in the most recent quarter.
“For us, the downturn is not yet visible,” P&G finance chief
Andre Schulten
said. “We’re also not naive, we see the pressure on the consumer.”
P&G expects organic sales growth of 3% to 5% for the current year, the lowest since 2019 when the company notched a 5% increase. The company predicts consumer-goods industry growth will slow by a percentage point or more from the last fiscal year’s 5% growth.
P&G Chief Executive
Jon Moeller
said in an interview that consumers are beginning to shift to cheaper, private-label alternatives, a trend already under way in food and beverages. He called the shift small but noticeable.
Mr. Moeller said he is confident that growth, though more muted relative to the past few years, will remain solid as high employment levels coupled with healthy household balance sheets enable consumers to keep spending on necessities while they cut costs elsewhere.
“There is no inherent reason why people are just going to stop buying modestly priced consumer products, daily-use essentials where performance matters,” he said. “You have to look elsewhere to get signals of consumer stress.”
The consumer-sentiment index and the consumer-confidence index both try to measure the same thing: consumers’ feelings. WSJ explains why the Federal Reserve is keeping a close eye on consumer confidence in 2022. Illustration: Adele Morgan
P&G shares fell more than 6%.
P&G’s results and outlook largely echo the messages coming from other big consumer brands. Companies including
Coca-Cola Co.
,
McDonald’s Corp.
and
Kimberly-Clark Corp.
this week reported sales gains driven by higher prices, and executives said they would keep passing along increased costs to shoppers for now. Yet some executives also said consumers are starting to show signs of stress, trading down to cheaper brands or cutting back on how much they buy.
The world’s biggest consumer packaged goods company by sales, P&G has largely outpaced competitors amid the pandemic, especially in the U.S.
Rivals are showing signs of gaining ground.
Colgate-Palmolive Co.
on Friday said it now expects bigger-than-expected organic sales gains, predicting an increase of 5% to 7% for the calendar year, up from 4% to 6%. Last week,
Kimberly-Clark
and
Unilever
PLC also raised sales outlooks for the calendar year.
Church & Dwight Co.
Chief Executive
Matthew Farrell
said on Friday that demand is accelerating for low-cost laundry detergent, while people are giving up electric toothbrushes for manual options. “Consumers are making choices to make their budget stretch further,” he said.
A central question is how consumers and retailers respond to further price increases. P&G said Friday that it had announced to retailers another round of price increases, in mid-single-digit percentages, which will take effect toward the end of summer.
SHARE YOUR THOUGHTS
How do you feel about the strength of the economy now? Join the conversation below.
P&G, after more than four years of market-share gains, lost share in the four-week period ended July 16 compared with a year ago, Bernstein analyst Callum Elliott said in a research note analyzing retail data. Losses are in every category except for beauty, he said.
“While prices spiral, the consumer also continues to adjust to the new reality,” he said.
Mr. Moeller said P&G continues to gain market share broadly in the U.S. and globally.
Organic sales rose 7% in the quarter ended June 30, with prices up 8% on average. P&G attributed the 1% decline in sales volume primarily to Covid-related shutdowns in China and intentional downsizing of its business in Russia amid the war in Ukraine.
P&G reported $19.5 billion in revenue for the quarter, up 3% from a year ago. Diluted net earnings per share were $1.21, up 7%.
The company expects diluted net earnings per share will be between flat and up 4% for the fiscal year as it faces an anticipated $3.3 billion hit tied to foreign-exchange rates and higher costs for materials and freight.
& Co.’s precious-metals traders consistently manipulated the gold and silver market over a period of seven years and lied about their conduct to regulators who investigated them, federal prosecutors said Friday.
The bank built a formidable franchise trading precious metals, but some of it was based on deception, prosecutors said at the start of a trial of two former traders and a co-worker who dealt with important hedge-fund clients. They said the traders engaged in a price-rigging strategy known as spoofing, which involved sending large, deceptive orders that fooled other traders about the state of supply and demand. The orders were often canceled before others could trade with them.
The criminal trial in Chicago is the climax of a seven-year Justice Department campaign to punish alleged spoofing in the futures markets. Prosecutors have alleged the former members of
JPMorgan’s
JPM -0.31%
precious-metals desk constituted a sort of criminal gang that carried out a yearslong conspiracy that racked up big profits for the bank.
“Day in, day out for seven years, the defendants manipulated the market so that they could make more money,” U.S. Justice Department prosecutor Lucy Jennings said. “And then they lied to cover it up.”
JPMorgan paid $920 million in 2020 to resolve regulatory and criminal charges over the conduct, which involved nine futures traders and at least two salespeople who dealt with clients such as hedge funds, according to court records. Three former traders cooperated with the Justice Department’s investigation and will testify against the three defendants: Gregg Smith and Michael Nowak, who traded precious metals; and Jeffrey Ruffo, who was their liaison to big hedge funds whose trades earned money for the bank.
SHARE YOUR THOUGHTS
How do you expect the trial to play out? Join the conversation below.
Attorneys for Messrs. Smith, Nowak and Ruffo told jurors Friday that prosecutors cherry-picked a handful of trades to concoct a misleading theory of how the men traded.
Mr. Smith canceled many orders but never used them as a ruse, defense attorney Jonathan Cogan said. He often canceled orders after he realized that high-speed trading firms, which made decisions faster than he could, jumped ahead of his orders and moved the price up or down, Mr. Cogan said.
“He did not place orders with the intent to manipulate the market, not during the snippets of time the prosecutors will focus on in this case—not ever,” Mr. Cogan said.
An attorney for Mr. Nowak, who led the precious-metals desk, said his client was a gold-options trader during the years under scrutiny. Mr. Nowak used futures mostly to limit the risk of his large options positions, attorney David Meister said, so his pay wasn’t linked to making more or less money on a futures trade.
“The stuff he’s charged with here couldn’t move the needle for Mike’s pay,” Mr. Meister said.
Mr. Smith had worked at Bear Stearns before joining JPMorgan in 2008 when the bank acquired Bear in a fire sale precipitated by the financial crisis. Mr. Nowak traded for JPMorgan in both London and New York. Mr. Ruffo worked at the bank for a decade, communicating with hedge funds that were brokerage clients and providing the desk with important market intelligence, according to prosecutors. All three have pleaded not guilty.
Prosecutors have alleged the pattern of spoofing was continuous, a claim that allowed them to charge the three men with racketeering in addition to conspiracy, attempted price manipulation, fraud, and spoofing. The conduct allegedly spanned from 2008 to 2016.
Racketeering is a charge typically reserved for criminal enterprises such as the mafia and violent gangs, although eight soybean-futures traders in Chicago were convicted of racketeering in a crackdown on cheating in the early 1990s.
U.S. District Judge Edmond E. Chang has reserved up to six weeks for the trial, although prosecutors said Friday that they could be finished presenting their case within two weeks. Judge Chang last year dismissed part of the case—several counts of bank fraud—against the defendants. Prosecutors also recently moved to drop allegations related to options trading that authorities claimed had been manipulative.
Prosecutors have alleged that JPMorgan employees already were spoofing when Mr. Smith got to the bank. They say Mr. Smith and another trader from Bear brought a new style of spoofing that was more aggressive than the simpler approach people at JPMorgan had been using, according to court records.
Spoofing became an important way to successfully execute trades for hedge-fund clients whose fees were critical to the trading desk, prosecutors said. “It was key to get the best prices for those clients, so that they keep coming back to the precious-metals desk at JPMorgan, and not another bank,” Ms. Jennings said.
Newsletter Sign-up
Markets
A pre-markets primer packed with news, trends and ideas. Plus, up-to-the-minute market data.
Guy Petrillo, an attorney for Mr. Ruffo, said Friday his client was a reliable and honest salesman whose only role was to communicate with clients and pass their orders to traders such as Messrs. Smith and Nowak.
“There will be no reliable evidence that Jeff knew that traders were using trading tactics that he understood at the time were unlawful,” Mr. Petrillo said.
Federal prosecutors have honed a formula for going after spoofing defendants during their multiyear strike on the practice. In addition to using cooperating witnesses who said they knew the conduct was wrong, prosecutors have deployed trading charts and electronic chats to depict a sequence of trades intended to deceive others in the market. While the charts show a pattern of allegedly deceptive trading, prosecutors said the incriminating chats reveal the intent of the traders placing the orders.
Former traders at
Deutsche Bank AG
and
Bank of America Corp.
were convicted of spoofing-related crimes in 2020 and 2021, respectively.
Those trials featured chats in which some defendants boasted about spoofing.
Lawyers for Messrs. Smith, Nowak and Ruffo said there are no chats in which their clients talked about spoofing because the men didn’t engage in it.
Spoofing is a form of market manipulation outlawed by Congress in 2010. Spoofers send orders priced above or below the best prices, so they don’t immediately execute. Those orders create a false appearance of supply and demand, prosecutors say. The tactic is designed to move prices toward a level where the spoofer has placed another order he wants to trade. Once the bona fide order is filled, the spoofer cancels the deceptive orders, often causing prices to move back to where they were before the maneuver started.
Mr. Smith’s style of spoofing involved layering multiple deceptive orders at different prices and in rapid succession, according to the settlement agreement that JPMorgan struck with prosecutors two years ago. It was harder to pull off but also harder to detect, and other JPMorgan traders adopted his mode of trading, court records say.
In the earlier trials, prosecutors successfully defended their theory that spoofing constitutes a type of fraud. Some traders have argued spoofing doesn’t involve making false statements—usually a precondition for fraud—because electronic orders don’t convey any intent or promises.
The tactic can impose losses on those tricked by spoofing patterns. The government has portrayed some of Wall Street’s most sophisticated trading firms, such as Citadel Securities and Quantlab Financial, as the past victims of spoofers. In the latest trial, prosecutors also plan to call individual traders who traded for their own accounts and were harmed by spoofing.
