Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.
o The House passed a domestic spending bill that includes a provision to give tipped workers a tax break on the gratuities they earn. While the bill faces challenges before being passed into law, it would impact both workers and diners in the food industry. The new bill would make income from tips exempt from federal income taxes, reducing the tax bill.
Currently, servers and other tipped workers are required to track and record every tip as income regardless of whether or not the money is pooled or redistributed. There are more than two million tipped workers in the United States. By making tips tax-free, companies might be more likely to encourage tipping in order to retain their employees, further increasing the growing trend of tipping prompts and tipping for more services. [The New York Times]
o A study published by the journal JAMA Network Open found that breakfast cereals are becoming less healthy with increasing amounts of sugar, fat and sodium. In addition, the protein and fiber, which are essential for a healthy diet, are on decline. The study found that the total fat content per serving of newly launched breakfast cereals increased nearly 34 percent between 2010 and 2023, while sodium climbed 32 percent. In addition, sugar rose 11 percent.
Breakfast cereals are among the most commonly consumed food for children aged 5 to 12, according to the Department of Agriculture. Nearly one-third of American children eat cereal for breakfast compared to only 15 percent of children who eat fruit for breakfast and only 10 percent who consume eggs. There is increasing pressure on food producers to reduce the amount of trans fats, sugars and sodium in their products, as they are often associated with chronic diseases such as diabetes and heart disease. Nutrition experts are advocating for healthier versions of the same products, often seen outside the United States in places such as Canada or the United States. [The New York Times]
o New homes have been getting smaller since the COVID-19 pandemic. In March, the median square footage for newly constructed homes on the market was 2,034, down from 2,135 in March 2020, according to Realtor. The smaller homes aid in alleviating the higher costs and help keep the market from stalling further amid unaffordable prices for many. With mortgage rates hovering between six to seven percent, buyers are more willing to sacrifice size than if it means finding a home to fit their budget.
Smaller homes also come with upside for builders, including ongoing sales and lower building costs. The listings can offer the same margins and returns as larger homes. However, companies to fill the interior of the smaller homes are often left in the dark, due to spacing constraints. [The Wall Street Journal]
o For millions of Americans who had their student-loan payments put on pause during the COVID-19 pandemic, the bill has come due. For many borrowers who aren’t paying on their loans, they are now considered delinquent or defaulted, sinking their credit score. In the first three months of the year, an estimated 5.6 million borrowers were marked as delinquent on their student loans.
In addition, the Trump administration began putting millions of defaulted student-loan borrowers into collections, threatening to garnish wages, tax refunds and any other federal government benefits. Morgan Stanley expects the amount of money in collections to rise $1 billion to $3 billion per month, a figure that could trim 2025 gross domestic product (GDP) by 0.1 percent. [The Wall Street Journal]
o The United States dollar typically strengthens during times of turmoil and geopolitical tensions. However, since President Donald Trump took office, his sweeping tariffs or threat of tariffs has caused the US dollar to decline six percent against a range of other world currencies.
The US dollar is the closest thing there is to a global currency and is the preferred currency for international transactions and the US has at times used the dollar as a foreign policy tool. The dollar is weakening this time because of worries that Trump’s tariffs will lead to an economic slowdown, as well as Trump’s indecisiveness in regard to implementation of his tariffs. In addition, investor confidence in the US dollar is weakening, especially now that chances of a recession are increasing and anticipation of the Federal Reserve eventually cutting interest rates. Worries of eroding investor confidence and America’s ability to fulfill its debt obligations is also a contributing factor. [Bloomberg]
