Jamie Dimon issues warning on rates: ‘It will undress problems in the economy’

 Link to the article: https://www.cnbc.com/2023/04/14/jamie-dimon-warning-on-rates-it-will-undress-problems-in-the-economy.html

According to JP Morgan (Ticker: JPM) CEO, Jamie Dimon, investors and businesses should plan for interest rates to remain higher for longer than expected by the market.

During his conference call with the analysts, he warned that higher rates would undress problems for those who are exposed to floating rates and to refinancing risks, referring to loans that reset the market rates.

He also said that a benchmark rate closer to 6% would impact the economy. As the federal funds rates are ranging from 4.75% to 5% and the Fed is expected to have a quarter-point rate hike, would the target rates reach close to 6%? Inflation would be expected to come down then, but would it reach the 2% target rate and also at what cost of the economy?

A.I. Software Could Potentially Close Tax Loopholes

No-one likes paying taxes, and according to the IRS the Federal tax gap was $496 billion (2014-2016). Tax loopholes are primarily to blame for this large disparity. Johns Hopkins Associate Professor Benjamin Van Durme and University of Maryland Law Professor Andrew Blair-Stanek are currently developing an AI program that aims to close tax loopholes. However, a common misconception is that tax loopholes are all illegal. This is not necessarily the case, Congress specifically includes some tax loopholes to incentivize certain activities such as investing. Such contemporaneous tax loopholes are not the target of this software. Rather, the software seeks tax loopholes fabricated by lawyers and accountants that provide overly generous tax breaks not originally intended. Furthermore, the goal is to have the AI software identify loopholes before lawyers and accountants can take advantage of them. The biggest question regarding this software is what are the implication for average tax payers? There will likely be no effect on everyday taxpayers, because individuals abusing these loopholes are at the upper level of the income distribution. Put simply, the majority of taxpayers will never know about these creative tax loopholes. While the software is intriguing, I personally believe it may not have as big of an impact as expected. There’s an underlying principal-agent problem that could hinder the effectiveness of this software. Specifically, the same individuals we elect to hold positions of power, are also the same individuals who benefit from these creative tax loopholes (irrespective of political party). Therefore, it will be interesting to see what impact this software has in the future. 

Article: https://finance.yahoo.com/video/ai-almost-game-changing-potential-205004615.html

The world’s peak population may be smaller than expected

 Big families are not hard to find in Nigeria. With the growing discussion of “overpopulation” as an environmental economic problem, African countries are often looked upon as a place where there are too many people being born, and there are not enough resources to allow for everyone to live a fair life with food, water, education, housing, employment, etc. The UN predicts that the current 1.2 billion population in Africa will grow to 3.4 billion by 2100. Some predict that Africa will undergo the same fertility changes that happened in China in the early 2000’s when the one-child policy was introduced. For Nigeria, which has Africa’s biggest population numbering about 213m people, the UN has reduced its forecast for 2060 by more than 100m people (down to around 429m). By 2100 it expects the country to have about 550m people, more than 350m fewer than it was reckoned a decade ago.

The topic of overpopulation, for me, correlates with the topics that we have been learning in class about socialism. In socialism, there are resources in the economy that are not always efficiently allocated, and shortages happen often due to there not being enough resources allocated. In terms of overpopulation we have the same thing going on. Some places on Earth are too populated and those places probably don't have enough resources to hold more and more people which will cause shortages and a lower quality of life in those places. In my opinion, overpopulation can be solved by limiting birth rates in some parts of the world, and encouraging it in others. The world can handle a larger population. Africa might not be able to do this.

https://www.economist.com/middle-east-and-africa/2023/04/05/the-worlds-peak-population-may-be-smaller-than-expected

Samsung's Fall

 Samsung's Fall

Samsung Electronics, a big technology company from South Korea, recently announced that it will reduce the production of computer chips due to lower profits, which is the worst performance in almost 15 years. The company expects its operating profits for the first quarter of the year to drop by more than 96 percent, which is a huge decrease. This is because there is not much demand for IT products like computers and smartphones all over the world. Samsung said that its profits from January to March are expected to be the lowest in 14 years, at around 600 billion won (equivalent to $455 million). The reason for this decline is the weak demand for IT products, which is affecting all sectors of the company. Samsung did not give specific details about how much production will be cut, but they said it will be significant. They mentioned that they will reduce the production of memory chips, which are an important component of computers and smartphones. This announcement shows that the global technology industry is facing difficult times, especially the semiconductor industry, which makes computer chips. It also shows how external factors like weak demand for IT products can affect the profitability of big companies like Samsung. This decision by Samsung to reduce chip production reminds us that the technology market can be unpredictable, and companies need to be ready to adapt to changes in the economy. The production cuts by Samsung are expected to have a big impact on the chip supply chain and the overall semiconductor market, although we don't know the exact scale of the cuts. As the global economy slows down, the future of the semiconductor industry and its major players remains uncertain. Samsung's decision to cut chip production is a reminder that the technology market can change quickly, and companies need to be proactive in responding to economic changes.

https://www.aljazeera.com/economy/2023/4/7/samsung-flags-96-percent-plunge-in-profit-amid-chip-slump

Job growth stays at expectation for March

Ever since Covid began the job market has been all over the place. Toward the start of the pandemic unemployment was at some of the highest rates it's ever been at. As this pandemic moved on jobs became less and less sought after as most companies were hiring people back and adding more than before to make up for the losses they endured from the pandemic. As of last year, unemployment was extremely low as there have begun to be more jobs than workers to fill those jobs. Now as of the end of March 2023, this trend of too many jobs and not enough workers is starting to slightly level out. 

As of March 2023, 236,000 new jobs were created in the U.S. and unemployment only slightly declined from 3.6 percent to 3.5 percent. While low unemployment is typically a very good thing it can lead to a lot of different economic changes such as high inflation, which is why the FED and other organizations are attempting to even out this rate. March is a good sign in terms of things to come as it shows these organizations might be doing a good job in slowing this rate. The overall number of jobs created this month was actually less than expected by 2000.

Another topic regarding the labor market that should be confronted is wages. It was shown that over the past year wage percentage change per month has continued to lessen from 5.7% this time last year to 4.2% this month. This might be a cause of too many jobs as many are looking for second or third jobs which will cause these job increases to stay more steady. If companies pay their workers more, fewer jobs will be needed but that's a conversation for another time.

Article: https://www.cnbc.com/2023/04/07/jobs-report-march-2023.html

(originally posted 4/10 updated on 4/12 to say this post was for the 3/27- 4/9 period)

US adds a healthy 236,000 jobs despite Fed’s rate hikes

     236,000 Americans got a job in the month of March, and experts are surprised by this shift. The Fed continues to rise the interest rates, which usually leads to the unemployment rate to increase. It did fall from January, but only by .1% to 3.5% to keep up with the lowest rates America has need in over half a century. The labor force participation rate is now up to 62.6%,m the highest it's been since COVID. People want jobs and they are finding them with ease. The African American unemployment all fell to half a century lows when it reached 5% last month.

    All of this consistency and success in the job market could led to the Fed dropping the interest rates because the job market is helping keep the economy stable. Although it probably won't be by much, a drop in interest is definitely wanted and needed by the American economy. With the recent fear of a recession ever looming around the corner, seeing this positive data is the perfect way to part the storm. This data is also the last employment data seen by the Fed before they meet in May, making the historically positive numbers a vital role for the future of the American economy.

https://apnews.com/article/jobs-unemployment-inflation-layoffs-economy-federal-reserve-40add7d390eca72a0294c8d5c80b2dd6

Asian shares subdued as jobs data raises odds of Fed rate hike

 Link to the article: https://www.reuters.com/markets/global-markets-wrapup-1-2023-04-10/

Asian shares inched higher as US latest job data implied a tight labour market, firming up expectations that the Fed will again raise interest rates next month.

Data from the Labor Department on Friday showed that nonfarm payrolls increased by 236,600, just a bit under 239,000 expected by the economists.

It also can be seen that even though wage gains have started to slow down, they are still too high to match the Fed's 2% inflation target.

While traders are convinced of rate cuts in the second half of the year by the Fed to prevent an economic downturn after the event of bank failures, some analysts see a disconnect between the Fed's path and the market's expectations. The disconnect is the consistently too-strong inflation, hovering at 6% compared to the 2% inflation target rate, which makes it quite unlikely that the Fed will cut rates.

Employment Issues Facing the Construction Sector.

    The Biden administration has been focused on improving and innovating the United States' infrastructure and public transport through new policy and funding efforts. It was around a year and a half ago, the president signed a 1 trillion dollar deal to give many roads, bridges, and transit systems a makeover.

    These proposed policies and subsidies are great ideas but can never be carried through if there aren't enough workers for the job. The number of available jobs in the construction industry jumped to 129,000 in February even though the total amount of listening dropped by 18,000. This is in contrast to the recent reports of the overall job markets where job openings have seen a dip signifying less unemployment.

    The issue is caused by not the lack of government funding but the lack of programs for the funding to be allocated towards. The government needs to step in a create more training opportunities, apprenticeships, and pipelines that support the education and job fulfillment of construction workers. By doing this, grants for the industry will be able to be used for the apprenticeship programs and for the improved infrastructure once enough workers are in the field. 

https://www.npr.org/2023/04/06/1158576556/where-did-the-workers-go-construction-jobs-are-plentiful-but-workers-are-scarce

    

A labor market cooldown: US economy added just 236,000 jobs in March

    With the unemployment number being released this past Friday, the numbers for new jobs were also posted. March came in underperforming. Only 236,000 jobs were created when 239,000 were expected. Though this is not a huge difference it is a sign that the labor market which has been on a boom recently is starting to slow down. In the last 12 months this is the first time that new job creation underperformed. However this market is still significantly higher than pre pandemic numbers where the average new jobs per month was about 183,000. Some of the industries leading the way are the hospitality, leisure, and health care. As more people begin to get back out into the world hospitality and leisure are starting to move back to pre covid number., Health care has been on the uptick because of the pandemic and continues to grow. Along with new jobs, the amount of available jobs drop to 9.93 million which is the first time in 10 years that it has dropped below 10 million. This is another signal that the boom is starting to slowly come back down to earth from soaring during covid.

https://www.cnn.com/2023/04/07/economy/march-jobs-report-final/index.html

Soaring Food Prices

 

Inflation has been a growing concern for governments and central banks worldwide, and a new threat to this problem is rising in the form of increasing food prices. According to a recent article in the Wall Street Journal, food prices have steadily risen due to various factors, including weather-related events, supply chain disruptions like the war in Ukraine, and increased demand.

            The rising food prices have significant implications for governments and central banks, as they can contribute to inflation and reduce consumer purchasing power. This is especially problematic for lower-income households, who spend a more significant percentage of their income on food.

            Rising food prices are a new inflation threat that governments and central banks must address. While there are no easy solutions to this complex problem, taking proactive measures to address the root causes of the problem may be necessary to prevent a worsening of the situation.

https://www.wsj.com/articles/food-prices-are-new-inflation-threat-for-governments-and-central-banks-969e7483?mod=economy_lead_pos1

Wages May Not Be Inflation’s Cause, but They’re the Focus of the Cure

 https://www.nytimes.com/2023/04/07/business/economy/wages-prices.html

Wages and inflation have been rising at the fastest pace in decades, but it has not been an even match back and forth as inflation has managed to outpaced wages in 22 consecutive months.

The economists are fearing the there will be a wage-price spiral, a phenomenon where higher prices lead to higher wages, which then feed on each other to create a spiral.

Sonal Desai, the chief investment officer for Franklin Templeton Fixed Income suggested that "wages are high enough that inflation is potentially unstable". While the Fed has stated the cause for inflation is mainly due to the Ukraine war, supply chain issues, shifts in consumer spending trends, employee cost is remain important to the "underlying inflation" rate: upward price pressures without these shocks.

Chairman Powell also commented in March that "some part of the high inflation is very likely related to an extremely tight labor market". This is building upon his remark in the fall that "strong wage growth is a good thing, but for wage growth to be sustainable, it needs to be consistent with 2% inflation".

BlackRock warns that investors are making a mistake by betting on the Fed to cut rates

Source: BlackRock warns that investors are making a mistake by betting on the Fed to cut rates (cnbc.com)

According to the Asset Management Firm BlackRock, investors mustn't rely on the Fed to lower interest rates to support the stock market. The firm's global chief investment strategist, Mike Pyle issued the warning, stating that investors who are banking on the Fed to bail them out are making a grave error, reasoning that interest rates are already at historic lows, and inflationary pressures are mounting, limiting the Federal Reserve's leeway with regards to dropping interest rates. Pyle recommended that investors must diversify their portfolios and prioritize high-quality assets that can weather market turbulence. 

Investors are also increasingly worried about the stock market's reaction to rising inflation, caused by several factors such as supply chain disruptions, rising commodity prices, and labor shortages. The Fed has stated that it will monitor inflation closely and adjust its monetary policy accordingly. Still, the effectiveness of its efforts in stabilizing the market remains to be seen. BlackRock's warning serves as a reminder that investors should not solely rely on the Federal Reserve to bolster their investments, relying instead on long-term, diversified investment strategies that have the ability to weather the storm of inflationary pressures and other unforeseeable market shocks. 

Factory Jobs making a comeback in the U.S.

The manufacturing industry has been a crucial part of the American economy for decades, providing jobs to millions of workers and contributing to the country's overall growth. After years of decline and outsourcing, however, the industry has seen a recent resurgence, with factory jobs making a comeback.

            According to a recent report by the WSJ, last year, U.S. production capacity showed its strongest growth since 2015. Manufacturing employment is up by nearly 800,000 jobs over the past two years, and the total number stands at 13 million. Despite all this growth, the manufacturing industry still needs to add about 800,000 more workers, according to the article.

            One of the main drivers of this resurgence is a renewed focus on domestic production and “reshoring.” Many American companies recognize the benefits of keeping their production in the United States, including reduced transportation costs, more control over quality and supply chain, and the ability to respond more quickly to changes in demand.

            The resurgence of factory jobs is a testament to the resilience of the industry and its ability to adapt to changing circumstances. As the United States continues to focus on domestic production and innovation, the manufacturing sector is well-positioned to play a significant role in driving economic growth and creating jobs in the future.

https://www.wsj.com/articles/american-manufacturing-factory-jobs-comeback-3ce0c52c?mod=economy_lead_story

IMF says U.S-China tensions could cost the world about 2% of its output

 

https://www.cnbc.com/2023/04/06/imf-foreign-direct-investment.html 

The International Monetary Fund said in a report on Wednesday, April 5th 2023, that the global tension between the United States and China could have significant impacts on the world output. This is because the tensions would disrupt the overseas investment and therefore lead to a long-term loss of 2% of the world’s GDP. This would highly impact supply chains that are already suffering, and countries are brainstorming various ways to create supply chains that can withstand this tension.

IMF economists said that money is now flowing into what are considered “geopolitically close countries.” The rise of “friend-shoring” could hurt less developed markets the most, the organization said. Friend-shoring or ally-shoring is the act of manufacturing and sourcing from countries that are geopolitical allies. Some companies and governments pursue friend-shoring as a way to continue accessing international markets and supply chains while reducing certain geopolitical risks.

As we have discussed in class, economies can experience shocks, and from our planner’s headache problem, we saw first hand how hard it is for companies to redesign their resource allocation and needs to produce products. These tensions have created strong vulnerability for countries to experience macroeconomic shocks. Overall, companies and countries are in dire need for reconfiguration of supply chains in order to keep them viable and not further hurt the world economy and its various systems.

Housing market data suggests sector's downturn 'coming to an end'

     Some positive news is coming from the housing industry as recent numbers suggest stabilization in a sector that has been struggling. Although there was a 25bps increase in interest rates by the Fed, mortgage rates dropped for the third consecutive week according to Freddie Mac. Reports show commercial mortgage loans may become increasingly more challenging, but residential mortgages will remain readily available. 

     Contracts to buy existing homes rose in February, the third month with the same effect. Along with that is the increasing confidence of home builders, who continue to build homes. Even with the high prices of materials, the builders continue to grow more confident that their homes will be sold. Existing home sales jumped 14.5% in February, which could be due to the decreasing mortgage rates. Home prices in major cities also fell 0.6%.

    The housing sector is one of the biggest parts of the US economy, almost single handily causing the recession in 2008. A strong housing market could show exemplify a stronger-than-expected economy. With the increase in home purchases, it seems people have a more positive outlook on the economy than expected. As long as consumers continue spending, the economy just might be ok. 

https://finance.yahoo.com/news/housing-market-data-suggests-sectors-downturn-coming-to-an-end-202631499.html

Layoffs are Up Nearly Fivefold so Far this Year

 Companies announced almost 90,000 layoffs in March, which is a 15 percent increase from February.  Over the past year, job cuts have totaled over 270,000, which is up 396 percent from the prior year.   The tech sector has been the leader in the cuts over the past year.  They have announced over 100,000 cuts in 2023 so far, which is responsible for 38 percent of all reductions.   It is on pace to surpass the 2001 dot com bust.  According to Andrew Challenger, the senior vice president of Challenger, Gray & Christmas, "With rate hikes continuing and companies' reigning in costs, the large-scale layoffs we are seeing will likely continue."

Financial companies were the second-highest sector in job cuts with over 30,000 layoffs this year, up 419 percent from last year's first quarter.  The main reason cited for the recent job cuts has been economic and market conditions, with cost-cutting being the next most often mentioned.

 https://www.cnbc.com/2023/04/06/layoffs-are-up-nearly-fivefold-so-far-this-year-with-tech-companies-leading-the-way.html 

How can the U.S. Banking system lower its level of risk and uncertainty?

https://www.cnbc.com/2023/03/31/its-the-us-not-europes-banking-system-thats-a-concern-top-economists-say.html 

Over the years, Europe has faced significant financial struggle and problems within their banking systems. However, as of today, they are in a very strong place to avoid further stress on its banking system after learning many lessons from its financial crises over the years. The United States on the other hand are still learning very crucial lessons about how to endure stress on their banking systems. In early March of 2023, there was a large collapse of the U.S. based Silicon Valley Bank, and several other regional lenders of these banks. This is causing a large amount of uncertainty and anxiety for the rest of the fiscal year, and in future years. However, the European Central Bank does not have this same worry factor. This is where central planning can be an effective tool in order to ease the uncertainty and anxiety that comes with the downfall of the central banking systems. If central planning were to be utilized in the united states, it might help them reach the level of European banking systems in their security.

In Ohio, Electric Cars are Starting to Reshape Jobs and Companies

    Electric cars are a step in reducing our carbon footprint by eliminating the use of gas for automobiles. However, the new EVs could also mean bad things for those employed in the auto industry. Ohio is the biggest producer of internal combustion engines (gas-consuming engines) in the country. 90,000 people in Ohio work in some form of automobile manufacturing. The increase in electric cars means that the factories that create internal combustion engines will not have to produce as many engines, forcing them to lay off workers until the internal combustion engine is deemed archaic in which case the factories will shut down all together. In other words, the days are numbered on the thousands of jobs supplied by the production of internal combustion engines. Sure electric cars also require labor, but they require much less work-hours than the production of combustion engines by a long shot. The big question is will the benefit of switching to electric cars outweigh the costs of the lost jobs? We're talking about two different areas of value, jobs and the environment, yet it would still be an important cost-benefit analysis scenario to consider.

Source: https://www.nytimes.com/2023/04/05/business/energy-environment/ohio-electric-vehicles-jobs.html