The Weakening Connection Between GDP and Pollution

The article (linked below) states that despite the rise in both GDP and carbon dioxide emissions in 2022, the two were not as closely tied as they usually are. Essentially, GDP increased, and carbon emissions increased by an amount smaller than what is usually associated a rise in GDP. Vox then goes on to describe various legislation and promises by the government to lower carbon emissions, as well as describing the increase in use of renewable sources for energy. It ends with a statement about how carbon emissions are looking better, but it will take continued dedication to decrease them.

While I do agree that slowing the increase of carbon emissions is a good sign, the article also made me think about how we decide to measure our impact on the environment. To my knowledge, we don't have a "deforestation index" that we regularly compare to GDP, which I feel would be important to combine with carbon emissions because it's decreasing a way to take carbon dioxide out of the air. It would also probably be connected to GDP because of how frequently we use wood for things like furniture, buildings, paper, etc that it would similarly rise when GDP rises. On top of that, there isn't much focus on other kinds of pollution like littering or industrial wastes. So while the article implies that GDP growth is starting to become disconnection from pollution, I think we need to look further into the historical impacts on the environment and how they relate to GDP (as well as their current levels) before we make that call.

https://www.google.com/amp/s/www.vox.com/platform/amp/science-and-health/23547051/greenhouse-gas-emissions-2022-increase-inflation-gas-price-climate-change-gdp 

China’s recovery may mean the Fed will have to hike rates longer

China has been known to have some of the strictest Covid-19 guidelines in the world. The pandemic started there and ever since the worldwide breakout, they have been on lockdown for the majority of the time.  Finally, China is dropping restrictions, but this is going to have a large effect on people, not just residents of China. 

The demand for products, social life, etc has been pent up for years now. Businesses had to adapt and adjust and there was less of a demand for certain products since people were in lockdown. This pent-up demand could send inflation high up around the world, including the US. The United States Fed has been working on decreasing inflation by raising rates, but this demand from China could pause or reverse progress in lowering inflation and affect monetary policy decisions.

Obviously the demand for many goods and services will increase, but the demand for gasoline and oil are going to skyrocket. The article outlined “As consumers are allowed out of their apartments, and start becoming more mobile, there’s going to be more gasoline demand and more jet fuel demand.” (CNBC). Even after announcing that China would be dropping guidelines in the near future, oil prices began rising. China opening is going to vastly increase the demand in markets worldwide. Markets all around the world are going to feel a burden of sudden increased pressure to create goods and services at a faster rate than they are used to.

 

https://www.cnbc.com/2023/01/19/chinas-recovery-may-mean-the-fed-will-have-to-hike-rates-longer.html 

U.S. GDP Grew at 2.9% Pace in the Fourth Quarter of 2022 as U.S. Economy Shows Signs of Slowing

 U.S. GDP grew 2.9% in the fourth quarter of 2022, beating Refinitiv economists' expectations of 2.6%, but a 0.3% decline from the 3.2% pace in the third quarter. A 2.1% increase in consumer spending, along with increases in private inventory investments, government spending, and a boost in non-residential fixed income can be highlighted as the main contributions to this fourth quarter GDP increase. 

    Despite this positive news, the U.S. economy is beginning to show signs of easing. Job growth is slowing, and the U.S. housing market entered a recession last year due to high mortgage rates. Causing investment in housing to fall 27% for the second straight quarter. Many economists at banks such as Bank of America, Goldman Sachs, and Deutsche Bank expect the economy will slip into a recession this year due to the Fed's interest rate hikes that will likely continue until their goal of 2% inflation is met. Joe Brusuelas, the chief economist at RSM, had this to say about the Fed rate hikes at the beginning of this calendar year, "Despite the resilient close to a difficult year in growth, we just do not see such a happy ending to a turbulent era of economic growth". Markets are expecting the Fed to approve a .25 basis point increase at the end of their meeting next week followed by another similar sized hike in March for a peak rate of 5%. Interest rates are closely linked to mortgage rates, which is why the the housing market is already in a recession. As the Fed rate hikes persist, it is likely the housing market will worsen, leading to a sizable decreasing in housing investment, which, as seen in the fourth quarter of 2022, can contribute to a further decrease in GDP growth. 

https://www.foxbusiness.com/economy/us-gdp-grew-pace-fourth-quarter-us-economy-cools-slightly

Prospects for the global economy are improving, as worst fears fade

    Over the past few months, economists have been spreading the worry of impending doom in the economy.  Their theory was that with so many changes in the interest rate and investment due to COVID, that the global economy was on the verge of falling into a deep recession. Countries refusing to trade with Russia, China closed to other countries due to COVID laws, and the high US interest rates were all major factors in forming the economist's opinions. In recent weeks though, the US, China, and Europe have proven these predictions wrong.

    All three economies have been improving over the last few weeks due to more participation in the American workforce, China abruptly opening its borders to other countries again, and Europe surprisingly handling not trading with Russia for their oil. The International Monetary Fund also forecasts that global growth increased by 0.2 from its initial estimate in October, showing that the whole world is starting to bounce back from the tough fall of COVID.

    The biggest surprise to economists was China deciding to open its borders and ease on their harsh COVID restrictions. The second largest economy in the world opening its borders will help the whole world recover. Trades with China will skyrocket and bump up activity in the global economy. 

https://www.washingtonpost.com/business/2023/01/30/imf-global-economy-improving/

Inflation is Cooling

    The New York Times reported on January 23rd that inflation has been consistently slowing for six consecutive months which is a good sign for consumers, but leaves many questioning how the Fed will respond.  The article primarily relied on Consumer Price Index (CPI) to support their statements, but also discussed changes in the Producer Price Index (PPI) and the Core Consumer Price Index.  

    The CPI is typically what the average person refers to when discussing inflation, but it is important to understand that CPI can be volatile due to food and gas prices that fluctuate at a greater rate than most durable goods.  For this reason, the Core CPI removes gas and food prices to better understand how products outside of those volatile goods are impacted by rising prices.  Finally, the PPI is a measure of price levels based on what domestic producers charge and receive for goods and services.  

    The article describes that inflation (CPI) has slowed down to about 6.5 after reaching a peak of about 9 in the summer of 2022.  The Core CPI, however, has not been consistently decreasing for the last six months and instead is currently sitting at 0.3% month-to-month.  0.3% is a faster rate than the 0.2% month-to-month increase before the pandemic, but has come down significantly since reaching about 0.9% in April of 2021.

      In terms of policy response, the Federal Reserve will likely continue to increase interest rates, but may increase by .25 rather than .5 or .75 as they have done previously.

https://www.nytimes.com/2023/01/23/business/economy/inflation-turning-point.html 

Chinese Growth Rebounds, But Other Economic Indicators Look Shaky

China saw a significant amount of growth in January. However, the growth experienced may only be artificially inflating growth factors. The nation's non-manufacturing PMI, aided by catering, tourism, and consumer spending, increased nearly 15% over the last month. However, growth in manufacturing was less than 1% at about 0.2%.

Another sign of trouble comes from one of China's strongest economic outputs, the car industry. Sales of cars only climbed 3.6% as opposed to nearly 7% a year ago. Home sales have also caused problems. the top 100 real estate developers recorded a 32.5% plunge in home sales. Finally, China has seen a steep decline in property development, which has helped their economy recently. Excavator sales, a key indicator of new property development, dropped 45% from a year prior. 

While the Chinese economy saw some gains last month, they seem to be inflated. Tourism, catering, and consumer spending were very high due to not only the New Year Holiday, but also due to the government loosening some of it's policies on Covid. They saw an uptick in consumer spending as people began to visit stores and restaurants for the first time in months. 

The underlying economy, however, does not seem to be strong for the Chinese. The things they do the best, manufacturing and car exportation, are among the top underperformers over the last month. They should see some rebounds as China begins to open up again after strict "Zero Covid" policies end, however, growth could be stymied for some time as their leading sectors recover.

https://www.bloomberg.com/news/articles/2023-02-01/china-s-economic-recovery-still-patchy-despite-brighter-outlook

IMF hikes global growth forecast as inflation cools and household spending surprises

 The International Monetary Fund has improved their forecast for global economic growth by 20 bps in 2023. Their most recent forecast has improved on the previous from 2.7% to 2.9%. This improvement comes after better-than-expected Q3, strong labor markets, good household spending, and a better-than-expected response to the European energy crisis.

    Although this can seem to be good news, it doesn't make the number good in the bigger scheme. The 2.9% is still a fall from the 3.4% growth in 2022. Emerging economies may also benefit from the weaker US dollar, especially if they hold debt in a foreign country. 

    The IMF continues to warn about factors that could influence growth this year. Some of these include the escalation of the War in Ukraine, the slowing of the opening of the Chinese economy, and worse inflation that is expected at this time.

https://www.cnbc.com/2023/01/30/imf-hikes-global-growth-forecast-as-inflation-cools.html

Continued wage increases

     In the fourth quarter, it was reported that wages grew by 1%. For the year wages increased by 5.1%. This is good news, however, the increase in wages wasn't able to keep up pace with the rising inflation levels. Even though wages still grew in the fourth quarter, the growth was slower than in previous quarters. Many predict that wages will continue in a downward spiral as the demand for workers has cooled down. The questions now lie in how and when the descent will end. When adjusted for pricing, wages, and salaries actually decreased for the year by 1.2%. The FED has to keep a close eye on this wage growth in relation to inflation because they will be making a decision today on how much to adjust interest rates by. The leisure and hospitality industry sustained the most year-to-year growth at 6.4%. This is the only group that has seen their wages keep pace with the inflationary environment.

https://www.cnn.com/2023/01/31/economy/workers-wages-fourth-quarter

When good economic news may not be good news

We are now entering a state of the economy in which it is best to slow and or reverse the effects of the monetary policy brought on by the COVID-19 pandemic. Currently, the IMF predicts that the global economy will see a growth of 3.2 % between the fourth quarters of 2022 and 2023. This is up from previous years at a rate of 1.9% between the years 2021 and 2022. A large reason for this growth outlook is based on recent news of the reopening of China which saw strict lockdowns during the pandemic. On top of that we are seeing falling energy prices in Europe which may contribute to global growth. 

It is known that the main goal of the Federal Reserve is to reach an inflation target of roughly 2% every year. The last recorded inflation rate was roughly 6.5% down from 7.1% in the month prior. This is good news as the U.S. economy has seen the worst of peak inflation, rising to a height of 9.1% in June of 2022. The IMF has predicted that inflation will see another decrease in 2023 and should likely see it drop to 4.3% in 2024. 

So this all seems to be good news, so what could be the problem? Well, these economic outlooks present a problem for central banks. Banks all over the U.S. have done their part since the beginning of the pandemic by lowering IR, RR, and offering better loan availability. The question is, when do they stop? Predictions of growth and low inflation are a large step toward a good economy, but can it be better? Does the bank need to continue the monetary policy, or reverse it? Currently, it is the Central Bank's idea to hold off on any decision until they see more change within the economy whether it be good or bad. Then and only then will they have a decision. 

https://www.ft.com/content/5f967cde-b409-4bb5-9671-33aadf66f87f 

Why is Recession being Contested?

 Economists are conflicted about whether or not we are headed into a recession. By definition, a recession is the decrease of GDP for 2 successive quarters or more followed by an increase in unemployment rate. According to this NBC article the current unemployment rate is 3.5%, a decrease from 9 months ago and is also the lowest it's been in the past 50 years. This was shocking for me because many people who got employed during Covid to meet demand in certain sectors are getting laid off since demand is decreasing from the beginning of the pandemic for these jobs. Also big companies such as Microsoft and Google just recently announced that they’re laying off a good chunk of their workforce. Despite these facts, there are millions of job openings, and unemployment is relatively low. This should mean that we shouldn’t be on the brink of a recession, but I believe that we still might be headed into a recession because prices are relatively high due to high inflation. This is affecting consumer spending negatively because people are no longer able to afford as much as before therefore spend less. A drop in consumer spending slows down economic growth since personal consumption makes up ⅔ of the US GDP. This decrease in consumer spending can be extremely detrimental to the economy because it decreases GDP. 

https://www.nbcnews.com/business/economy/are-we-in-a-recession-2023-economy-federal-reserve-interest-rates-rcna67826

Europe’s Economy Edges Higher, Heading Off Forecasts of Recession

Europe has been showing signs in there economy that a recession may not happen. Europe has had a long battle like the US in dealing with inflation, interest rates climbing, and price increases. Among those Europe has been having to deal with the war in Ukraine and the effect it has on the rest of the countries in Europe. This week the statistics agency reported the the economy grew 0.1% in the final quarter of the year. This comes at a huge sign of relief for European governments as it seems that inflation has either hit its peak or has passed it and the possibility of a recession is slowly decreasing. There are still many issues to fix throughout the countries, Britain economy went down 0.6% due to cost of living climbing. Europes economy is still on the fence and will continue to be as long as the war in Ukraine continues.

    Europe as a whole has been improving there economy faster than the US has been this year and the fourth quarter of 2022.  With overall economy growth slowly going up Europe does not have to think about rationing gas and preparing for black outs due to the lack of oil they are receiving. The war has effected all of Europe. With the end of December and January closing in it can be safely said that Europe has navigated through the toughest situations with their economy. 

https://www.nytimes.com/2023/01/31/business/europe-inflation-economy.html

Long Covid is keeping people out of work resulting in labor shortage

 Long Covid, a post covid illness that results from Covid 19 infection is keeping people out of their jobs, decreasing the overall on-the-job employee productivity, and therefore leading to the labor shortage. From the statistics, the article tells us that almost 30% of people who suffered from Covid developed long-haul covid, and 18% of people who developed long-haul covid didn't get back to their jobs for more than a year. According to the Bureau of Labor Statistics, there are approximately 1.7 open jobs for every unemployed worker. In December, the labor force participation rate was 62.3%. The NYSIF report looks at 89,107 workers' compensation claims made between January 2020 and March 2022. The insurer approved 3,139 Covid-19 claims, 977 of which involved long Covid as defined by certain criteria. 

The report suggests that the statistical evidence can give us sufficient information about the current state of the labor market, and specifically the underrated reason for so many vacant jobs and decreasing LFPR since Covid-19. According to Long Covid research, the illness played an unnoticed role in these broad pandemic-era labor trends, which likely contributed to inflationary pressures in the US economy. 

Gophi Sad Goda, a senior fellow at the Stanford Institute for Economic Policy Research states that Long Covid has taken people out of the labor force at roughly the same rate as annual baby boomer retirements.

Article Link: https://www.cnbc.com/2023/01/30/long-covid-has-underappreciated-role-in-labor-gap-study.html 

German Economy Shrinks in Quarter 4

Just like the U.S., many other countries' economies have been struggling due to the pandemic and other inflationary factors. One of the countries that have been affected is Germany whose economy has shrunk by 0.2% in the last quarter of 2022. Germany is known to be Europe's largest economy as well meaning that Europe as a whole is most likely still experiencing the effects of the pandemic as well in some way or another. 

There has also been a decrease in spending which was the main cause of Germany's GDP going down for the first time since the start of 2021. Timo Klein wrote, "surging inflation weighed on consumers’ real purchasing power" showing that inflation has also been a big cause of the economic decline. Another big reason for the decline in the economy was a gas shortage as a result of the Russian war on Ukraine. They received a lot of their gas from Russia, but the war slowed its production meaning Germany received less. 

In order to correct the shrink Germany is looking to bring the gas purchases back to where they were pre-war times and work on the inflation rates in the country to represent where the economy is at currently. They are estimating by doing this and other things that the economy will grow by about 0.2% this year. This prediction was at 0.4% before quarter 4 of last year but due to the major setback their estimates have changed. 

Article: German Economy Shrank 0.2% in Q4, Worse Than Expected (usnews.com)

European Ban on Russian Fuel

 Since the outbreak of war in Russia and Ukraine, we have seen a severe economic impact on the price of fuel and sources of energy across Europe. This week, Europe continues to take steps to separate from Russia, and has banned any imports of diesel fuel and other products from oil supplied from Russian refineries. Europe has already begun cutting ties with Russia, and has reduced their imports by almost half, going from Russia's supply of 50% of total imports, down to 27% of total imports. Many European nations are also discussing putting a price cap on Russian diesel going forward. What does this mean for the global economy? 

This will have a major impact on the flow of fuel throughout Europe and the rest of the world. Europeans will continue to find new suppliers for oil, and Russian diesel exporters will have to find new clients to purchase their product. If they do not, this will likely have a significant impact on the supply of diesel, and the price of Russian diesel. In addition, if European buyers are now looking to enter a different diesel market with an alternate supplier, there would be more competition with other importers, and prices will continue to skyrocket. Fuel and energy are significant forms of bargaining and incentives among agents. If there is a threat to the supply and cost of fuel, there is a threat to the economy as a whole, and can cause significant damage. 

https://www.usnews.com/news/business/articles/2023-01-30/will-europes-ban-on-russian-diesel-hike-global-fuel-prices

Consumer Spending Falls

     Consumer spending numbers for December were released recently and those combined with the newly revised numbers from November show promise for the health of the economy. New numbers and revised numbers now show that consumer spending slightly decreased in both November and December of 2022. This is the first decrease in consumer spending in about two years as consumer spending has been on the rise ever since the pandemic hit and came with boredom, new hobbies and stimulus checks. The decrease in consumer spending could mean that the high inflation we've been facing could finally make a turn for the better. The numbers come as a bit of a surprise given the timing but it's good news nonetheless. There's a chance that these numbers do nothing except give false hope but only time will tell. After all the economy is ever-changing and can be quite erratic at times. Hopefully it means we'll finally see an end to the hardships and economic strain of late.

 

Article: Consumer Spending Slid Again in December by the New York Times

Economic Boost

  Economic Boost

Philippine is enjoying a historic economic boost. Ths country posted a growth rate of 7.6%, its fastest economic growth since 1976, and exceeded the expectation of the government's expected growth of 6.5%. The credit for this strong growth is given to domestic demand, increase in employment, increase in spending, circulation of money flow, and fully operational country since the pandemic. On a quarter-on-quarter basis, GDP growth from October to December was 2.4%, 0.9% higher than what was expected. The Philippine government is convinced that they are going to keep the growth of 6 to 7% in 2023 but they are aware of the risks involved and the difficulties ahead. The world's economy is slowing down and after the Ukraine war, rising inflation can force more policy tightening for the whole world. Apart from GDP growth, the Philippines is struggling against inflation, with record-high inflation for the last 14 years, and if not tackled in time, this high inflation can bring down the economy by decreasing domestic demand which is a major source of GDP growth for the country. The government is planning to have more strict monetary policies to bring inflation down from 8.1 to 2-4 in 2023.

https://www.aljazeera.com/economy/2023/1/26/philippine-economy-grows-at-fastest-pace-in-40-years

https://www.reuters.com/markets/asia/philippines-q4-gdp-grows-72-faster-than-forecast-2023-01-26/

Inflation Cools Further in December Ahead of Key Fed Meeting

​​ The federal reserve has shown that the annual rate for interest has risen at 5% since last month. PCE has fallen almost 6% since last recorded in November. With an improvement in inflation recently it has caused the stock market to go on an upward slope. Inflation rate is still about 2% above the average from the goal the FED has set. The economy has taken a turn regarding the prices for products and services as goods prices have increased 4.6% and services prices have increased 5.2%, this increase does not include the increase in the price of food which has risen nearly 12%. Many economists believe that the economy is headed for a crash especially with how weak the 4th quarter is. 

    While many people see inflation going down as a plus for how the economy is doing but the reality of it is the economy is slowly teetering from going into a recession. Prices continue to rise and employment is going down, this will result in consumer spending to drop.

https://www.usnews.com/news/economy/articles/2023-01-27/inflation-cools-further-in-december-ahead-of-key-fed-meeting

Key Fed Inflation Measures Ease in December While Consumer Spending Also Declined

The Fed has closely monitored key inflation measures as they have continued their interest rate hikes. As a result of their interest rate hikes, we have seen impacts on economic indicators such as consumer spending and personal consumption. In December 2022, personal consumption expenditures, excluding food and energy, increased by 4.4% from a year ago. Monthly core PCE was in line with expectations increasing by 0.3%. Additionally, we saw a rise in personal income by 0.2%. However, we have a decline in real consumer spending by 0.3%.

In 2022 we saw an increase in interest rates from nearly 0% to a current target of 4.25%-4.5%. Going forward it is reasonable to believe that we can expect additional interest rate hikes to combat inflation. It is estimated that we can expect another quarter percentage point at the next Fed meeting. The goal of the Fed moving forward is to continue to manage high inflation by cooling the labor market and reducing supply and demand imbalances. It will be interesting to see how the Fed will proceed with its interest rate increases in 2023.

Article: https://www.cnbc.com/2023/01/27/pce-inflation-december-2022-.html