There is a new idea embraced by economists that the US economy avoids a downturn entirely and hums along with the labor market intact and inflation under control. In recent days, better-than-expected reports on the labor market, retail sales, and even the housing market have bolstered the positivity of optimists. However, some data show that inflation is sticking around longer than expected, and pricing pressures remain even as the Federal Reserve promises more pain in the form of interest rate hikes. The current economy is doing better than was predicted at the end of last year. The widely followed GDP Now model from the Federal Reserve Bank of Atlanta predicts that the U.S. economy will grow at an annual rate of 2.5% in the first quarter, an increase from 0.7% in late January. In some ways, the more optimistic thinking comes amid a series of potentially negative economic readings. Inflation rose 0.5% from December to January, but the yearly rate fell for the seventh consecutive month. Bond yields have risen, with short-term Treasuries now yielding more than 5% for the first time since 2007 as markets price in higher Fed interest rates. This is interpreted as a belief that the Fed will be able to control inflation, even if it will take a little longer. The housing market is still under extreme pressure from rising mortgage rates, but builders were more confident in February, according to the National Association of Homebuilders, with sentiment reaching its highest level in ten months. According to the builder survey, the percentage of builders offering discounts or other incentives to entice buyers has decreased: In February, 31% of builders reduced home prices, compared to 35% in December and 36% in November; average price cuts in February were 6%, compared to 8% in December. Then there's the labor market to consider. The unemployment rate is 3.4%, wages have been rising, albeit not as quickly as inflation, and the number of available jobs actually increased in the most recent reading. Meanwhile, Social Security recipients saw their payments rise 8.7% in January as a result of the 2022 inflation rate. That brings us back to the Fed. The central bank is committed to returning inflation to its 2% annual target, a figure that is still well below half or more of current levels depending on the measure used. Consumers account for nearly 70% of the economy. With so many jobs available, consumers may be able to keep the economy running for longer than expected. Of course, Fed rate hikes have a lag effect, and those big hikes in 2022 may bite harder and derail the economy six months from now.
Friday, February 17, 2023
Like the Weather, the US Economy Started 2023 Warmer Than Expected
Thursday, February 16, 2023
Wholesale Inflation Increases More Than Expected In January
The most recent Producer Price Index figures, which quantify inflation at the wholesale level, rose 0.7% in January, exceeding Refinitiv economists' estimates of 0.4% and marking the largest month-to-month increase since this past summer. This data follows the most recent Consumer Price Index data which revealed that prices paid directly by consumer rose 0.5% in January, the highest in three months. Annual inflation was also hotter than expected, only decreasing 0.1% from 6.5% in December to 6.4% in January. These metrics indicate that inflation remains high despite the Fed having increased interest rates eight times in the recent months. The increases in all three benchmarks stem from 1.2% growth in final demand for goods, nearly one third of which can be traced to higher gasoline prices, up 6.2% in January. Separately, and particularly dismaying for consumers, food prices have also risen 10.1% since January, 2022.
Markets dipped following these inflation reports, as increased uncertainty with regard to how long it will take for inflation to cool, along with rising food and gas prices continues to foster uneasiness among investors across all markets. "Both inflation readings this past week point to the stickiness of inflation and the fight isn't over, especially when considering today's PPI reading was the highest month over month increase since early summer", said Mike Loewengart, head of model portfolio construction at Morgan Stanley. "It shouldn't be a surprise to see the market take a deep breather as hopes of a dovish Fed in the coming months fade."
Blackouts, currency dives and corruption: Pakistan’s economy is on the brink of collapse
Pakistan is a country that faces many more challenges and hardships than more developed countries like the U.S. Most recently, Pakistan is suffering a bombing attack on a mosque that killed 100+ people. Along with this attack, Pakistan on January 24th, all 230 million residents of the country were hit with a nationwide blackout due to lack of oil and gas available to fuel the power sources needed to run factories, businesses, and infrastructure. This has further led to the Pakistani rupee to be at a record low against the dollar, and their economy hanging on by a thread. There has been lots of government corruption for months, leading up to all of these effects, and has quickly depleted their foreign reserves, and skyrocketed debt. Essentials to the Pakistani citizens have skyrocketed in price to the point it is all Pakistani citizens can really talk about.
After months of a depleting economy in Pakistan, The International Monetary Fund is beginning to consider aiding the country with a $7-billion payout package that is secured for desperate emergencies. Despite Pakistan being in a crippling condition, the International Monetary Fund wants to see Pakistan implement their own monetary policy reforms before they unlock the $7-billion. The IMF over the years has provided millions to the Pakistani government to aid with economic growth for the country. Pakistan has to make many critical moves within their economy to aid the direction of the economy to switch. It will definitely be interesting to see if the IMF hands over the $7-billion package or not and how this will affect the world economy and oil and gas resources in the coming months as countries may attempt to aid this country suffering so much.
East Palestine, Ohio train derailment
Recently, 38 train cars filled with toxic chemicals were derailed in East Palestine, Ohio. This derailment has affected the area negatively and brought to light many concerns and current topics we have been covering in class. It's been stated that this train derailment could have easily been avoidable and was caused due to the constant cost-cutting of the railroad industry. This perfectly relates to perfect markets and market failures. The requirements for perfect market failures are related to lack of competition, lack of information, issues pertaining to the provision of public goods, and externalities. Many issues we see today, including this train derailment, are not considered failures of the market because the market prioritized efficiency. So, this type of incident, although very troublesome to the people in the community, should not be a surprise. The market favors efficiency and the railroad industry has been outdated and in need of innovation for a while now. Rather than pursuing innovation, though, the railroad industry's main concern has been with cutting costs in order to compete with the shipping and trucking industries. Due to these cutting of costs, overtime, the train, and railcars become less equipped with proper safeguards and precautions. This is why our system is not completely laissez-faire. The government is supposed to oversee most industries and ensure people's and workers' safety. However, it is quite evident that the government has not done the proper due diligence regarding the safety and protocols of the railroad industry as pointed out by the Vox article. Since the markets only favor efficiency and not safety that is left up to the government but if the government is lackadaisical and enforcing then what should be done to prevent these types of accidents?
https://www.vox.com/policy-and-politics/23597778/ohio-train-east-palestine-trainwreck-accident-chemical-norfolk
https://www.npr.org/2023/02/16/1157333630/east-palestine-ohio-train-derailment
Wednesday, February 15, 2023
Airline Boom
Airline Boom
Air India, the largest international airline and second-largest domestic carrier in India, is buying 470 Boeing and Airbus passenger jets as it seeks to modernize its fleet and tap into the increasing demand for affordable air travel from the country’s expanding middle class. This purchase is the United States plane maker's third-largest sale of all time, in dollar value, and its second of all time in quantity. The financial terms of the deal were not disclosed, but the order could be worth tens of billions of dollars. Over the next 15 years, it is estimated that India will need more than 2,000 aircraft, and the purchase of these planes will be done by Air India. Air India is a carrier seeking to reinvent itself and expand its operations, and this boom in airline demand will help Tata Sons, Air India's owner, compete against upstart discount rivals, including India's dominant carrier, IndiGo. This massive order provided a one in a lifetime for Air India to compete against plane giants in an industry where the winner usually takes all. US President Joe Biden called the agreement "historic," and Indian Prime Minister Narendra Modi applauded the deal as a sign of the strengthening “strategic partnership” between India and other countries. The demand for air travel in India and elsewhere in Asia has grown substantially over the past decade, fueled by fast-growing economies that have raised incomes and made travel more affordable for millions of people. Brendan Sobie, a Singapore-based aviation analyst said, “There’s a lot of catch-ups to do” for Air India, as it is competing with newer budget airlines that moved faster to tap demand on domestic services as well as foreign carriers that are giant competitors on international routes.
https://www.aljazeera.com/economy/2023/2/15/air-india-announces-orders-for-470-boeing-airbus-jets
Economic Impacts of Turkey and Syria Earthquakes
A large, catastrophic, life changing event like the 7.8 magnitude earthquakes that struck Turkey and Syria on February 6th can have major economic effects on these nations, on top of death tolls, the destruction of homes, and an uncertain future. This was to be a crucial year for the Turkish economy, due to a great amount of notable changes in their social, political, and economic realms. Turkey was already subjected to high energy prices, and other national security issues due to effects of the war in Ukraine. However, economic policies enacted by Erdogan kept interest rates on bank deposits between 10-15%, despite severe inflation rates in Turkey. This earthquake will change everything about the current economic standing of Turkey. The Turkish economy was projected to grow by about 3-3.5% in 2023, but now with a possible disaster relief cost of up to $84 billion, this growth certainly will not stand. With over 8,000 residential and commercial buildings completely destroyed, thousands of public schools, hospitals, and government offices damaged, and gas, oil, and electricity lines broken, there is going to be a severe investment of national funds to this repair, as opposed to the investment in economic infrastructure. A loss of 2.0-2.5% of growth is projected to be lost, therefore the country is only expected to grow its GDP at a rate of 0-0.5% in 2023.
https://www.cnbc.com/2023/02/09/turkey-earthquake-comes-at-a-critical-time-for-the-countrys-future.htmlTuesday, February 14, 2023
Lael Brainard Elected to Lead New Government Economic Team
On Tuesday, February 14th, President Biden announced that his former advisor on inflation and macroeconomics Brian Deese was stepping down from his position. Once out of office, Biden then appointed Lael Brainard as Deese's replacement. Brainard was a member of the FEDs board of governors for the past nine years or ever since 2014. This new position gives her the title of director of the National Economic Council and replaces a figure that has been in office since before Biden was elected as President. This switch of roles had no other government involvement as this specific position didn't need to be approved by the Senate, unlike many other economic government roles.
In this role, Brainard will be given tasks such as helping to implement Biden's economic agenda and giving him new insight into possible inflationary problems happening in the United States. Because of this change, there could be greater emphasis on different parts of our economy that Brian Deese wasn't highlighting as much during his time in office. This wasn't the first time that Brainard had been considered for an economic role in the government. Back in 2020, at the start of Biden's presidency, she was nominated as a possible replacement for the treasury secretary. Brainard, unfortunately, lost this nomination to another female candidate; Janet Yellen who is currently still the treasury secretary.
As Brainard starts her new career she has major inflationary problems to confront as inflation is at a high right now around the country, and is causing backlash as common goods such as eggs are becoming less and less affordable to many. Along with these problems she has to deal with underlying pandemic economic issues and has to push Biden's current economic policies further. Essentially Brainard has a lot on her plate and will have much to do with her newfound promotion.
Sunday, February 12, 2023
The Biden administration's response to Chinese balloon
This week, journalist Anna Swanson wrote an article for the New York Times entitled "U.S. Blacklists 6 Chinese Entities Involved in Spy Balloon Programs." In the article, Swanson discusses how the United States is responding to the supposed "weather balloon" which is now believed to be a Chinese spy balloon that flew over the U.S. last week. The balloon was eventually shot down on the coast of South Carolina after it had traveled a vast majority of the country.
In response, the Biden administration has listed 6 Chinese companies that are now heavily restricted in terms of selling parts to the United States. These companies include 5 Chinese companies as well one as one research institute that all specialize in airship military programs as well as balloons designed for recon and intelligence gathering. It is unclear at the time if these companies were directly involved with the balloon. The Biden administration also used diplomatic retaliation for the situation by canceling the secretary of state's trip to Beijing later this year.
Republicans argue that the Biden administration's stance was "too soft" to effectively reflect the magnitude of the situation. They also heavily critiqued Joe Biden for waiting until the balloon was out to the ocean to shoot it down. The White House's response was that due to the risk of a civilian potentially getting hit with the debris from the balloon, they choose to wait until there was no risk of it hitting anyone. The Chinese government's response to the situation has been to deny that the balloon was for surveillance purposes and instead insist that it was a weather balloon.
https://www.nytimes.com/2023/02/10/business/economy/china-spy-balloon-sanctions.html
Friday, February 10, 2023
The Federal Reserve's $2.5tn Question: Navigating a Complex Economic Landscape
The Federal Reserve of the United States has been at the forefront of efforts to support the economy during the COVID-19 pandemic. One of the main tools the Fed has used to achieve this goal is the expansion of its balance sheet, which has grown to an unprecedented $2.5tn. The massive increase in the Fed's assets presents both opportunities and challenges for the central bank as it navigates the economic landscape. One of the primary challenges the Fed faces is determining the appropriate size for its balance sheet in the post-pandemic era. The central bank has been purchasing large amounts of Treasury bonds and mortgage-backed securities to support the economy, but at some point, it will need to start shrinking its balance sheet to prevent inflation and maintain stability in the financial markets. However, there is no clear consensus on the optimal size for the Fed's balance sheet. Some economists argue that the central bank should maintain a larger balance sheet to ensure that it has the necessary resources to respond to future economic crises. Others believe that the Fed should shrink its balance sheet as soon as possible to prevent the risk of inflation. The Federal Reserve is facing a complex economic landscape, and the $2.5tn question of how to manage its balance sheet is a critical issue that will have far-reaching implications for the economy and the financial markets. The central bank must weigh the risks and benefits of different options and make decisions that will promote stability, support economic growth, and maintain public confidence in the monetary system. Do you believe the Fed should reduce its balance sheet, or maintain the current balance sheet?
Article: https://www.economist.com/finance-and-economics/2023/02/09/the-federal-reserves-25trn-question
Thursday, February 9, 2023
Disney to cut 7,000 jobs and slash $5.5 billion in costs as it unveils vast restructuring
Disney is planning to reorganize into three separate divisions -- Disney Entertainment (streaming/media operations), ESPN Division(TV network/ESPN+), and a Parks, Experiences, and Products unit. Although their reconstruction of their company is attempting to cut costs, it is at the expense of thousands of jobs. These changes were made shortly after Disney posted its most recent quarterly earnings. Since those earnings were posted, Disney announced that it would be cutting $5.5 billion dollar in costs. $3 billion dollars in costs would be cut from content excluding sports and $2.5 billion would be cut from non-content cuts. The company also said it would be eliminating 7,000 jobs from their workforce which is about 3% of its total 220,000 workers.
https://www.cnbc.com/2023/02/08/disney-reorganization.html?recirc=taboolainternal
Tuesday, February 7, 2023
Digital pound likely this decade, Treasury says
A state backed digital pound is likely to be launched according to the Treasury and the Bank of England. With the declined use of cash and advances in technology, many countries and banks have had the idea of making a central bank digital currency or CBDC. It would be a trustful and safe way for people to be able to pay completely digital through their phones, or other devices.
The CBDCs would use blockchain technology like a cryptocurrency does, but it would be centralized and the value of each pound would not be change. For example, 10 dollars cash would be 10 dollars in the central bank digital currency. The CBDCs would be accessible through a digital wallet or smartcard. Another part of the groundwork for a CBDC is that it would be backed against an asset. Prime Minister Rishi Sunak asked the Bank of England to look into backing a currency, in 2021, as chancellor.
Changing a national currency from paper to digital would have drastic macroeconomic effects. If a CBDC is backed by a fixed asset, then our banks will be restricted and not allowed to print as much money as most economies have in the last 3 years. A CBDC would slow growth and inflation down though because of the inability to increase the money supply. Many digital payment processing companies like Venmo and Zelle would see an increase in activity due to money becoming more digital too.
There is controversy with CBDC's. Many people are critical of blockchain technology because of the recent collapse of FTX and crypto currencies like Terra Luna. Many fear that this technology also will ruin privacy as "There are likely to be initial restrictions on how much of the currency any individual or business could hold"(BBC) and people speculate that what you spend your CBDC money on is able to be tracked by others.
Overall, I think that the idea of a CBDC is not the best idea because I fear that the government will be able to manipulate how and what I consume when the CBDCs roll out. I may be against the idea, but I do see the initial framework and infrastructure of CBDCs being implemented soon as many financial leaders and banks have been open about their interest in blockchain technology. These coins being rolled out will require crypto regulation, and now is the perfect time to regulate crypto given the hostility against it by the masses.
Link: https://www.bbc.com/news/technology-64536593
Monday, February 6, 2023
Devastating Earthquake in Turkey & Syria
On February 6th, an earthquake with a magnitude of 7.8 began with an epicenter in the Turkish city of Gaziantep. The earthquake has so far lead to the deaths of over 1,400 people with thousands more injured. This is the most devastating earthquake since the one in Istanbul in 1999 which took the lives of 18,000 people.
Although the title may not appear as "economic news" in the traditional sense, it does not take much to understand the devastating impact that the destruction and leveling of entire cities will have. Not only will the damage cost the city millions of dollars to restore infrastructure, but the loss of lives is also an economic impact on the area. The loss of lives decreases the labor force that is so much more crucial in response to the natural disaster.
Natural disaster relief is further impacted by the war-torn areas in Syria that have been affected by the earthquake. The northern portion of Syria hit by the earthquake is currently controlled by three different leaders: the national government, occupied by Turkey, and controlled by rebels. The separation of leaders in the various territories will having varying responses to the earthquake. In the context of economic systems, the economic efficiency of each regime varies so dependent upon where you live or your socioeconomic status, depends if you are able to receive assistance or medical attention. Turkey, as a member of the UN, can receive certain types of disaster relief assistance that the rebel-controlled area of Syria will not have access to. This lack of current assistance will prevent the cities from being able to recover in the long run.
https://www.economist.com/international/2023/02/06/massive-earthquakes-in-turkey-and-northern-syria-kill-thousands
Sunday, February 5, 2023
War in Ukraine: who benefits from sanctions, price rise, and materials supply crisis
When we think about the war in Ukraine we think of the sanctions put on Russia and price rises of many products. However there are some countries and industries that are benefiting by the sanctions put on Russia. One such industry is steel and ore. Ukraine and Russia are main suppliers of pig iron. Now Turkey, Brazil, and India have started to take on the role of supplying this iron to Europe to meet their quotas. Another industry affected is the copper industry. Russia supplies about 4% of cooper for the world. There is already a deficit in the supply so countries like China, Chile, and Indonesia could benefit from an increased deficit in supply. Other industries that are being affected are aluminium, nickel, oil, gas, and agricultural products, and ammunition. The largest benefactors are the countries that also produce these products. If they are able they can become larger suppliers for countries in need of solutions like the EU. However when there is already a deficit in supply loosing a supplier continues to do harm for the industry. I think what will be interesting to follow will be when the war in Ukraine ends what will be the move for EU countries and the US with relations to Russia. Will they go back to importing from Russia or will they seek out other suppliers to satisfy their needs.
https://gmk.center/en/posts/war-in-ukraine-who-benefits-from-sanctions-price-rise-and-materials-supply-crisis/
The UK recession will be almost as deep as that of Russia, economists predict.
According to Goldman Sachs' 2023 macro outlook, the UK economy is set to undergo a 1.2% contraction in Real GDP over the course of 2023, with the worst economic outlook out of all G-10 nations, being only marginally better than Russia, which is set to undergo a 1.3% contraction in its real GDP. The GS macro outlook also suggests that the UK economy would follow up with a 0.9% expansion in 2024. The consultancy firm KPMG also projected a 1.3% decline in the UK GDP. Goldman's projections for the UK are below the market consensus of a 0.5% contraction in 2033, and a 1.1% expansion in 2024.
This forecast, quite worryingly, puts Britain only marginally ahead of Russia, which continues to wage a war in Ukraine whilst facing punitive sanctions from the western world. the UK seems to be the worst performer amongst all major economies besides Russia, with Germany trailing behind with an expected 0.6% contraction in 2023, followed by a speculated 1.4% expansion in 2024.
Alongside Goldman Sachs, the OECD (Organization for Economic Cooperation and Development) also suggests that the UK will lag significantly behind other developed nations in the coming years despite being in a similar macroeconomic situation as them, putting London closer in performance to Moscow than the rest of the G-7.
Goldman Sachs' Chief Economist Jan Hatzius further stated that the Eurozone and the UK are already in a recession, with drawn-out increases in household energy bills, causing inflation to soar, causing the real income to fall, leading to negative consequences for consumption and industrial production. Real income is forecasted to further decline in the euro area by 1.5% through Q1 of 2023, and 3% in the UK through Q2 of 2023. The UK Office for Budget Responsibility projects the nation to face the sharpest decline in living standards on record, with a forecasted decrease of 4.3% in real household disposable income. Consumption is also not helped by the fact that the Bank of England increased its interest rates by 50 basis points in December 2022. Households are expected to rein in spending on discretionary goods, and non-essential items, further decreasing consumption.
These macroeconomic issues coupled with heavily depleted trade post Brexit and the UK sickness crisis are set to have organizations cast a very negative outlook on the UK economy in the coming years. In my opinion, the deteriorating labor market (unemployment rates are set to rise to 5.6% by 2024) coupled with rising inflation is set to have far reaching implications for the global economy as a whole, with UK consumers consuming very little compared to what one might think they would've consumed after the Covid-19 pandemic.
Mortgage Rates Falling
Mortgage rates fell last week for the fourth consecutive
week despite the fact that the Federal Reserve hiked interest rates another 25
basis points. According to an article
published on cnn.com, the 30-year fixed rate mortgage averaged 6.09% which was
down from 6.13% the week before. This
represents the lowest rate since September of 2022 and is down a full point
from the 7.8% peak in November, although rates are still up significantly from
a year ago when the average mortgage rate was 3.55%
According to CNN, the most recent drop made a $400,000
mortgage attainable for three million more households as compared to the
previous rates.
The Federal Reserve does not directly control mortgage rates
but they do set short-term interest rates which impacts the yield on Treasury
bonds, and as treasury yields go up, mortgage rates go up too.
The most recent rate hike, which was more modest than the
markets expected, signals that inflation is slowing and the economy slows,
which is good news for the mortgage industry.
The article quotes Mike Fratantoni, senior vice president of
the Mortgage Bankers Association.
“Investors are betting that the economic slowdown and the Fed’s eventual
victory over inflation will result in lower rates over time.”
The Mortgage Bankers Association is now forecasting that
mortgage rates will continue to drop through 2023, and end the year closer to
5%.
https://www.cnn.com/2023/02/02/homes/mortgage-rates-february-2/index.html
Unemployment Rate Hits 53 year low
The unemployment rate started the year off strong with an increase in nonfarm payrolls by over 500,000 compared to the estimated 187,000. This lowered the unemployment rate to 3.4% which is the lowest it's been since May of 1969. This led to the labor force participation rate of 62.4%. The largest gain came from the leisure and hospitality sector added 128,000 jobs. This led to a 0.3% increase in average hourly earnings for the month.
This increase comes despite the FED's best efforts to lower inflation and slow the economy down. Chairman Jerome Powell said that the labor markets are still "out of balance" and "extremely tight." As of the end of the year, there were still 11 million open jobs, which comes out to just a little under 2 for available workers.
The FED is still holding out hope to perform a "soft landing" and most economists still expect a small recession at some point this year, despite the positive gains in the labor market.
https://www.cnbc.com/2023/02/03/jobs-report-january-2023-.html
The worst is over for the global chip shortage
Peter Voser, the chairman of ABB, the Swedish-Swiss tech and engineering giant, believes that the global shortage of semiconductors is being sorted out after years of disruption to supply chains. This shortage has had a ripple effect on the global economy, and was particularly challenging for ABB in 2022. In 2023, Voser expects an improving outlook in China while the rest of the world experiences lower growth. The slowdown in economic activity has helped balance out the shortage, and the US has taken measures to boost the domestic production of chips. Voser also noted that tensions between China and Taiwan are a risk to watch moving forward.
Global growth slowdown is also a factor for why the semiconductor industry has turned the corner and supply has increased. However, the shortage has shown the world’s dependency on semiconductors, especially in Taiwan. Hopefully, the newly passed CHIPS act will attract manufacturers to create microprocessors domestically.
https://www.cnbc.com/2023/01/17/worst-is-over-for-global-chip-shortage-abb-chairman-says.html
America needs a new environmentalism
Carbon County Wyoming, of all places, is currently being used as a hotspot for wind farms. There is so much open land in Wyoming, and not a lot of people who need to use the energy with Wyoming's population of 580,000. Philip Anschutz, a billionaire who made his fortune from fossil fuels, wants to turn his Wyoming ranch into a sea of turbines. This is because energy that is made in Wyoming can be transferred to anywhere in the United States. This means that a wind turbine in Wyoming and power a Tesla in Los Angeles.
President Biden’s most popular legislation is the Inflation Reduction Act (IRA), and provides tax credits to clean energy projects. This incentivizes people like Mr. Anschutz to move from fossil fuel projects to renewable energy projects. The only problem is that getting these projects approved is lengthy, and can take up to five years to fully develop a solar farm, which is causing a major lag in the fight to slow climate change.
What this means is that although the IRA seems to have a lot of potential in fighting climate change, it is happening too slowly to be efficient. This coincides with the idea that some parts of an economic system can actually slow the other down. Although it is more equitable to have a healthy climate, it is not efficient (yet). If we can speed the process of approval for clean energy projects, then it would be more efficient.
https://www.economist.com/united-states/2023/01/29/america-needs-a-new-environmentalism
Fed raises rates a quarter point, expects ‘ongoing’ increases
The Federal Reserve raised its benchmark interest rate by 0.25 percentage points to a target range of 4.5%-4.75%, the highest since October 2007. This is the eighth increase in a process that began in March 2022, and is intended to bring down inflation which is still running near its highest level since the early 1980s. Markets were looking for signs that the Fed would be ending the rate increases soon, but the statement provided no such signals. Fed Chairman Jerome Powell acknowledged that “the disinflationary process” had started, but noted that it would be “very premature to declare victory or to think we really got this.” The Fed is also reducing its bond portfolio, and markets are betting that the terminal rate is closer to 4.75%. The Fed is likely to make one more quarter-point increase in March, and Powell said it's “possible” that the funds rate could stay lower than 5%, but unlikely to cut rates this year unless inflation comes down more rapidly.
https://www.cnbc.com/2023/02/01/fed-rate-decision-february-2023-quarter-point-hike.html
Saturday, February 4, 2023
The Weakening Connection Between GDP and Pollution
Friday, February 3, 2023
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.
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
Thursday, February 2, 2023
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
Wednesday, February 1, 2023
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
Tuesday, January 31, 2023
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.
Europe’s Economy Edges Higher, Heading Off Forecasts of Recession
Monday, January 30, 2023
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-pricesConsumer 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/
Sunday, January 29, 2023
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
Tuesday, January 24, 2023
Walmart Raises Employee Wages
An article in the New York Times illustrates that Walmart is working to raise wages for their employees. This is due to the fact that many employees are leaving and their hope is that they will retain the employees that they have already. The wages are said to change from $12-$18 an hour to $14-$19 an hour. These changes will be taken into effect in March 2023. Some challenges that can arise from this pay increase could worsen the company. There are risks of a recession that could end up financially hurting the employees and company. The generation shift from the baby boomers leaving the workforce could result in loss of employment. Another issue that arises is that the wage increase will help Walmart lower their inflation strain however, this could prolong inflation throughout the economy. Overall, there are benefits to the rising pay for Walmart employees however there are also future challenges that could greatly impact the community.
This article corresponds with what we talked about in class with incentives. Walmart was struggling to keep their employees therefore they gave them higher wages to incentivize them to stay and work for them. This type of incentive is called: Material incentive.
Article: https://www.nytimes.com/2023/01/24/business/walmart-minimum-wage.html
Why Apple Isn't Cutting Its Workforce
Recently, major tech companies such as Google, Meta, Microsoft, and Amazon have all been laying-off large parts of their workforce. There are two main reasons why these big tech companies have had to drastically reduce their workforce. Firstly, between September 2019 and September 2022, most tech companies saw the economic boom as an opportunity to expand their workforce. For reference, Amazon’s workforce doubled, Microsoft’s grew 53%, Google’s went up 57%, and Meta’s drastically increased by 94%. However, due to the current economic downturn it has become unsustainable to maintain current workforce numbers. Secondly, a lot of tech companies invested in very speculative projects such as self-driving technology and the metaverse. These job cuts have caused substantial losses for the big tech companies. In the past year, Meta (Nasdaq:META) fell 54%, Amazon's is down roughly 33%, Alphabet (Nasdaq:GOOGL) has dropped 25% and Microsoft (Nasdaq:MSFT) dipped 18.7%.
Apple has been able to avoid the large layoffs and is only down 13.4% (Nasdaq:AAPL) in the past year. Apple has avoided the large layoffs by not following the actions of its tech counterparts. Specifically, when other big tech companies were rapidly expanding their workforce, Apple only grew its workforce by 20%. Additionally, Apple avoided the speculative investing other big tech companies were doing at the time. Despite Apple remaining stronger than other big tech companies, it has had to make some changes. Apple has slowed hiring and CEO Tim Cook has taken a voluntary 40% cut in salary.
Article: https://www.bizjournals.com/sanjose/news/2023/01/23/heres-how-apple-has-avoided-big-layoffs-so-far.html
Sunday, January 22, 2023
China's population drop impacts the economy drastically
Last week Paul Krugman posted an opinion piece in The New York Times entitled The Problem(s) With China’s Population Drop. In the article, Krugman begins by pointing out that there are some discrepancies in knowing if what the Chinese say is true or not. He says "Many observers are skeptical about Chinese data; I’ve been at conferences when China released, say, new data on economic growth, and many people responded by asking not “Why was growth 7.3 percent?” but rather “Why did the Chinese government decide to say that it was 7.3 percent?”
As the article continues, Krugman talks about the issues that arise in China's population decline, despite overpopulation being a prevalent topic in the 1960s and 70s. With this fear, the Chinese government enacted the now-famous one-child policy, which was a catalyst for the two major issues facing the Chinese economy.
One of the first major issues is that the Chinese population is aging. The problem arising from this is that the dependency ratio on government aid is skyrocketing, with relatively small younger generations having to back this up by working and paying taxes. This is also an issue that we are seeing in the United States as well.
Another issue is that due to the aging population, the overall spending curve is shifted to the right drastically. This is done in order to keep the Chinese at the Full-Employment point. Doing this hinders the amount of spending that can be set aside for investments.
Despite this issue though the Chinese government has been able to stabilize this issue by creating extremely high rates of investment, which has allowed them to grow from being "a poor, developing nation into an economic superpower in just a few decades."
https://www.nytimes.com/2023/01/17/opinion/china-population-economy.html