Australia Recession Risk Rises as RBA Seen Hiking More Than Fed

     There is now a one in three chance that there will be a recession in Australia in the coming 12 months. The updated probability came after a jump in inflation that has pushed the Reserve Bank of Australia (RBA) to continue hiking rates for longer than expected. Traders in Australia are now pricing in four more interest rate hikes, while the Federal Reserve is expecting only three more hikes. In comparison to the Federal Reserve, RBA started its tightening two months after the Fed and moved less aggressively because it thought once the supply chain was fixed so would the economy. Not only did the RBA start two months later than the Fed, but they also downshifted to 25bps increases in October while the Fed was still increasing by 75bps. Another reason the RBA moved less aggressively is that the job market was so strong, and they didn't want to weaken the market, but now they need to start acting aggressively while the job market is becoming weak. 

    Problems could arise in the housing market as well in Australia. In the USA, most home buyers take out a 30-year mortgage to help protect them from changing interest rates. In Australia, most home buyers take out a variable rate mortgage which floats with the RBA rates. This could lead to issues with defaults and other problems, especially with unemployment on the rise. With the higher interest rates, people will be less likely to purchase new homes, further impacting the housing market. 

    Australia does have a slight economic impact on the rest of the world and could cause a ricochet effect of economic issues if they plunge into recession.

https://finance.yahoo.com/news/australia-recession-risk-rises-rba-180000084.html

Economic Uncertainty On Tap for the Week

A mix of economic reports this week is unlikely to provide any clarity on the strength of the economy, or the stickiness of inflation. Last week, Wall Street experienced its worst performance of the year as it became evident that inflation was persisting more than expected, which could result in the Federal Reserve keeping interest rates higher for longer. This week, a variety of economic reports will provide insight into the state of the economy, including reports on the housing market, manufacturing and services sectors, auto sales, and consumer confidence. The economy is currently experiencing uncertainty, with factors such as economic growth, job growth, and inflation fluctuating. However, the economy is holding up better than expected, especially the job market (adding up 517,000 jobs in January). The article also notes that pending home sales for January are expected to have a modest gain, but affordability challenges may persist, resulting in a less active spring season for homebuyers. The Institute of Supply Management’s manufacturing index is expected to show a slight contraction in January, and the services sector index is expected to show growth but slightly below the rate of December. Auto sales for February may show a dip but to around the 15 million annual level. The article concludes that the data from this week's reports may provide insight into the state of the economy and may materially alter the trend of continued interest rate hikes, slowing inflation, and a resilient labor market.

https://www.usnews.com/news/economy/articles/2023-02-27/uncertainty-over-inflation-and-economic-slowdown-likely-to-continue-this-week

Why are Koreans getting unhappier despite economic prosperity?

 Since the 1950s, South Korea has seen rapid economic growth. In 1953, the GDP per capita of South Korea was $67 and in 2021 it was just north of 35,168. However, despite this growth and continuing prosperity, many South Korean citizens have a rather grim outlook on the future. 

The article in The Korean Times offers a couple of interviews with very different types of people from South Korea. All of the interviewees describe feelings of anxiety and hopelessness. These somber feelings of the interviewed individuals are also reflected in data. South Korea scored a 5.9/10 on OECD life satisfaction scale is below the average 6.7/10.

The author of the article offers a few reasons why South Koreans are feeling grim about the future. One main concern is a lack of a social safety net. Many countries have strong institutions in place to take care of their elderly citizens post-retirement. Many Koreans citied the fact that the current safety net makes them skeptical about the idea of being able to take care of themselves and their families when they retire. 

Another concern of Korean citizens is intense competition and comparison with others. Several people have said that for too long, the country has prioritized economic growth. Many of the older citizens often measure their success only in economic terms, but this is likely due to the fact that growing up, they often experienced intense poverty. The prior generation was forced by circumstance to work long, hard hours and jobs. Many people today however, would like to live in a society with a better work-life balance. 

Many say they would like to see the country shift its policy focuses away from economic growth and more towards the support of the people. 

https://www.koreatimes.co.kr/www/biz/2023/02/488_345943.html

US Spending Surge

 US Spending Surge

US consumer spending rose in January due to an increase in wages and salaries. The increase of 1.8% was the highest since March 2021 and outperformed the predicted 1.3% increase. Spending was likely caused by seasonal fluctuations at the start of the year and a cost of living adjustment for more than 65 million Social Security beneficiaries, which increased income. Purchases of long-lasting manufactured goods, such as motor vehicles, household furnishings, and equipment, increased as well as spending on dining out and recreation. The personal consumption expenditures (PCE) price index rose by 0.6% in January, the largest increase since June 2022, and the PCE price index increased by 5.4% in the 12 months t. The Fed has raised its policy rate by 450 basis points since last March from near zero to a 4.5%. Financial markets are expecting another increase in June. Personal income increased by 0.6%, the majority of which is a result of strong wage growth. Consumers increased their savings while spending, as the saving rate increased to 4.7%, the highest in a year. The Fed is expected to deliver two additional rate increases of 25 basis points in March and May.

https://www.aljazeera.com/economy/2023/2/24/us-consumer-spending-surges-in-january-inflation-heats-up

Ukraine finds stepping up mobilization is not so easy

     Now that a year has passed since the invasion of Ukraine, the country is frantically looking for an increase in troops as they anticipate needed to mobilize more troops in the coming months.  This has been a tough task for the country as they move further away from legitimate means of drafting soldiers.  There have been several reports of people unable to participate in war being called to participate.  The example given in the article is a man with no hands who then shared his discontent on Facebook.  As the military became more desperate, they began stationing recruiters in city centers and malls to pressure more people into signing up for the draft.  However, as more people are called to war, more people are finding ways to avoid being on the frontlines.  Exemptions are made for married men with three or more children or single-parent homes, students can defer participation, and certain professions are able to avoid being deployed by working pro-bono towards military efforts in surveillance, intelligence, engineering, and similar fields.  Many have resorted to faking marriages with multiple children or paying a few thousand dollars to be smuggled across the border.  Several lawyers are working to support those who cannot be asked to participate in the military (such as the disabled), and other lawyers are working to protect the rights of those who were forced to sign up by intimidating and vigilant recruiters.

    Given the information above, we cannot expect the war in the Ukraine to end soon.  We also can expect more lives will be taken and conditions will worsen for the soldiers.  The military can expect backlash for their intimidation and illegitimate tactics for recruiting soldiers.  Europe will suffer further as the oil prices will remain high.  Ukraine has been asking for more resources for months now, and the pressure for NATO to send more artillery and ammunition will only grow.  This will continue to cause prices to rise across the globe, and unfortunately, we cannot expect an end in sight.

https://www.economist.com/europe/2023/02/26/ukraine-finds-stepping-up-mobilisation-is-not-so-easy 

How a Ukrainian dog food company survived and thrived during a year of war

     On the first anniversary of the Russian-Ukrainian war, journalist Patricia Cohen traveled to Lviv and Prylbychi to write a story for The New York Times on a positive externality that was caused by the war. This is the Ukrainian pet food company Kormotech, which not only survived the war but thrived.

    When the war first started, Kormotech shut down due to several factors. One was that they could not get the imports needed into the country and their exports out. The second was that many of their factory workers went to fight in the war, so they didn't have the workforce needed to maintain operations. There also was one of the biggest issues of all is that Kormotech's biggest export market was Belarus, which is a well-known ally of Putin.

    Despite these factors working against the company,  Kormotech was able to overcome the odds. Last year, the majority of Ukranie's small family-owned businesses like Kormotech had to shut down permanently due to the war. One of the biggest factors that aided them was that after the pandemic and the issues that arose in having to leave their factories and having no inventory as a backup so this time they were prepared. They had two months of inventory and they were able to sell this to countries such as the U.S. This gave them time to reorganize and prepare another facility to be used for production. They found a company that had never made pet products before and taught them what to do. Over time, they were able to get back to full capacity and were able to give over a thousand jobs to Ukrainian civilians who could not fight in the war as well as provide income and taxes when Ukraine needed them most.

    Throughout all of these hardships, Kormotech persevered and despite all of the hardship that Ukraine is experiencing right now, it felt good to find an article that showed how people were able to make it out of the dark that is the war and flourish in the harshest of conditions.

https://www.nytimes.com/2023/02/23/business/economy/ukraine-company-kormotech.html

The US economy may be inching closer to the cliff edge given these 4 troubling signs, Larry Summers says

    In this article, Larry Summers believes that the U.S. economy is close to entering a massive recession. He believes that the positive economic news that we have been receiving is misleading Americans into being too optimistic about the economic outlook for 2023. 

    He claims that our economy is way too tough to read and that there may be good news regarding a growth in stock prices or high consumption rate over the last month. He also mentions that inflation is a huge contributor to future issues and that the negatives outweigh the positives. 

    He notes that inventories relative to sales has increased and he also thinks companies are overstaffed while consumers seem to continue spending regardless of the massive price increases we have seen. Summers fears our economy can have a Wile E. Coyote moment where the economy is moving along and then all of a sudden, the economy crashes very sharply. 

    More rationale for Summers' pessimist approach comes from the efforts from central banks as the hike in rates has failed to bring inflation down as prices are continuing to surge at a ridiculously high rate. He thinks that if the U.S. gets aggressive with another hike, then we can see a Wile E. Coyote moment with the markets. He also thinks that if no interest rate hikes are made, then inflation will continue to outrun the speed of the economy. 

    I agree with Summers as I do think that our economy is in a lose-lose situation. The effect of all of the money we printed during covid has been huge as we as a nation are all over leveraged. We have a huge debt crisis and the continued irresponsibility of all actors in the economy has doomed us. The fact that the FED can have an unlimited budget is disturbing and has cost us today. Overall, I think that we will see a continued drop in the markets as inflation will continue to rise while consumers will eventually realize they cannot spend like they have.

LINK: https://markets.businessinsider.com/news/stocks/us-economy-outlook-troubling-signs-larry-summers-recession-2023-2

Ukraine prepares for the biggest reconstruction project since WWII

It has been exactly a year now since Russia initially invaded Ukraine, where they were met with destruction and violence. Ukraine's economy is in shambles due to the destruction of many buildings, homes, schools, and hospitals. 

In 2022, the World Bank estimated that Ukraine's GDP fell an enormous 35% and that the population share of income that is below the national poverty line would likely take a large hike to 60%. This is up 40% since the most recent data in 2021. With these numbers in mind, the World Bank had taken the initiative in 2022 to help finance Ukraine during their efforts in a war they did not want. The emergency fund was roughly $13 billion dollars and was paid through grants, guarantees, and linked parallel financing. For reference, parallel financing is where multiple banks finance the same project and expenditures. 

The International Monetary Fund (IMF) calculated that inflation in Ukraine ended at 26.6% in 2022. Given what we know about wars, it is very typical for inflation to sore during times of high government spending. Managing Director at IMF, Kristalina Georgieva, visited Ukraine last week and mentioned that she saw "an economy that is functioning, despite the tremendous challenges". She noticed that businesses were open and people were walking around; the economy was recovering slowly but surely. Georgieva restated her commitment towards Ukraine's war efforts and has streamed together $2.7 billion in emergency loans. At a G-20 meeting on Thursday of last week, the IMF is looking to move towards an even larger emergency fund of $10 billion in hopes to see a more "swift" recovery in Ukraine.

The United States is also committed to the recovery of Ukraine and has provided $76.8 billion in military and economic aid. Around $46.6 billion of it are grants, loans, and weapons and security assistance.  The United Kingdom has given $5.1 billion in emergency loans and the European Union gave $3.3 billion in loans. But how much loan help is too much? When should Ukraine stop accepting these contributions from other countries? This answer will come down to a political decision within Ukraine.

Overall, we can expect Ukraine to slowly start its journey to a full economic recovery but it will not be easy. Ukraine is in a condition in which they will accept all the help they can get, and surrounding countries are showing their working efforts through loans and grants. We can expect GDP to grow in Ukraine within this upcoming year along with a decrease in inflation from a large 26.6%. 

https://www.cnbc.com/2023/02/24/ukraine-prepares-for-the-biggest-reconstruction-since-world-war-ii.html 

Russian budget deficit rising, but Moscow won't drain the war chest anytime soon.

Source: https://www.cnbc.com/2023/02/15/ukraine-economists-say-moscow-and-putin-wont-drain-war-chest-any-time-soon.html

 Russian fiscal deficit has hit a record 1.8 trillion rubles ($24.4 million) in January of 2023, with spending growing by 58% compared to the previous year, amidst revenues falling by more than a third. 

All of this comes amidst World Bank, IMF and OECD reports stating that the Russian GDP dropped by at least 2.2%, and at most 3.9% in 2022, with further contractions expected in 2023. Industrial production and retail sales in December fell to their worst year-on-year contractions since the pandemic, with retail consumption falling by 10.5%, and industrial production dropping by 4.3% on a year-on-year basis. 

The Russian finance ministry and central banks, however, state this all of this is within their models, and that several unique circumstances and accounting technicalities could explain the scale of the January deficit, according the Chris Weafer, CEO of a Macro Advisory based in Moscow.

The drops in tax revenue were accounted for by changes in the tax regime since the beginning of January, according to the Russian finance ministry, which stated that the previous bi-monthly tax system for companies has been changed to a single, consolidated payment plan once a month, on the 28th. The finance ministry then went on to suggest that a large portion of January tax payments had not yet been accounted for by January 31, and will instead be reflected later, in February or March.

Another point that was highlighted was the fact that a change in Russian oil tax maneuvers that came into force in January needs some kinks ironed out, and that due to the nature of Russian public spending, most of it is heavily concentrated at the very end of a year, increasing the fiscal deficit. 

Some other factors that may have distorted the deficit figure would be the fact that this was the first report since the Russian crude oil embargoes, which went into force on December 5, which led to Russia buying up tankers and gaining access to more ships in their fleet to re-route the seaborne export trade overnight, after Europe stopped purchasing Ural crude, which also caused a fall in the Ural crude pride, averaging a measly $46.8 per barrel from mid-December to mid-January, according to the Russian finance ministry. Pre-payment from the public sector to the military industrial complex for the war in Ukraine also contributed to the deficit.

However, as of now, with Ural crude prices rising back up to $50 a barrel, and the ramping up of Russian sales of Chinese yuan as energy revenues decline, which is expected to amount to roughly 160.2 billion rubles' worth of FX between Feb 7 and Mar 6, Russia seems to have "plenty left in the tank", according to Christopher Granville, MD of global political research at TS Lombard, and that the Kremlin would not let its yuan reserves to be fully exhausted before  it resorts to other methods of fund procurements. 

Several reports suggest that Moscow is set to invest in another wave of yuan and other "friendly" currency reserves, in the event of acceptable oil and gas revenues, and that it has plans to issue debt domestically, allowing banks to buy government debt. 

The unique nature of the Russian economy, in which a substantial portion of its GDP is generated by state-owned enterprises, allows Russian domestic life and war effort appear to be relatively unaffected by sanctions, at least at face value. The private sector, however, faces fat greater volatility, as seen by the woes of the Russian automotive production sector. The Russian economy is not set to collapse under the weight of sanctions, as some may suggest.

These sanctions, however, are going to lead to diminished technology access, and according to Demarais, author of a book on the global impact of U.S. sanctions, the most significant long-term damage to the Russian economy will stem from its exclusion from the international technology sharing sphere, as it faces further ostracization from the international community, leading to a large gap between western and Russian technological capabilities in the coming years.

AI Reshaping the Economy

    The increasing development of AI has provided many implications for every corner of the economy. AI is changing the game across a wave of different industries, from retail to transportation. Some of the most prominent industries effected by this include farming, manufacturing, financial services, retail, and transportation. 

    The most intriguing technology in my eyes is the transformation of the farming industry. With technologies that collect and analyze data used to improve the health of crops and increasing yields will improve productivity and profitability within the market. Not to mention the ease of which AI products can analyze the data. 

    Another advancement falls within the retail industry. As the article mentions, a third of retail jobs are projected to be displaced by 2030. With automated tills, warehouse robotics, and AI-based planning tools affecting companies already in the UK. We have already seen retail jobs decrease with the onset of the Covid-19 pandemic and the use of self-checkout technologies, but analysts believe there is more to come. The checkout free store has already been tested with Amazon Fresh and we might soon see this technology across many stores worldwide. 

    As ChatGPT takes over the market, AI technologies are something everyone needs to invest knowledge in because it will soon take over many industries. With both positive and negative effects on our economy, the world is changing very fast. 

https://www.theguardian.com/technology/2023/feb/18/from-retail-to-transport-how-ai-is-changing-every-corner-of-the-economy

Consumer debt hits record $16.9 trillion as delinquencies also rise

Article: https://www.cnbc.com/2023/02/16/consumer-debt-hits-record-16point9-trillion-as-delinquencies-rise-as-well.html

Consumer debt reached an all-time high of $16.9 trillion at the end of 2022, a 1.3 trillion dollar increase from 2021. Delinquency rates were also seen to be rising for many loan categories, according to the NY Federal Reserve.

Mortgage originations for new home loans and refinancings fell to $498 billion, a drop of $145 billion from Q3 of 2021, and an almost 50% drop from Q4 of 2021. Despite this, however, mortgage balances rose to $11.9 trillion, an almost $250 billion increase from Q3 of 2021, and an almost $1 trillion increase from a year ago. 

Mortgages that are considered to be in serious delinquency (delinquency of 90 days or more) rose to a rate of 0.57%, nearly double compared to the rates at the same time last year. Automotive loan debt delinquencies rose by 0.6% to reach 2.2%, and credit card debt rose to 4%, a 0.8% increase. Student loan debt also increased for this month, after staying at a constant rate throughout most of the pandemic, with student loan balances hitting $1.6 trillion in Q4 of 2022. 

This news comes in the wake of rising inflation and climbing interest rates, even as employment level remain robust, with the Federal Reserve following an aggressive rate-hiking campaign to combat 41-year high inflation rates, with the Federal Reserve increasing target rates seven times during 2022. 

This increase in consumer debt arrives during this ongoing Federal government borrowing situation, with US Government debt standing at $31.5 trillion, up from 29.6 trillion at the end of 2022, according to data from the Treasury Department.

With eye on Russia, Greece and Bulgaria expand gas deal

    Since the country I picked for my final term project is Greece, I decided to focus my newsletter on big news coming out of the country. In an effort to reduce ties and reliance on Russian supplies, Greece completed a deal Bulgaria to use their gas storage facilities in trade for their own gasoline supply. This deal was made four months after the two countries connected a natural gas pipeline, allowing for easy distribution between the countries. This will also eventually be made available to the other Baltic countries, reducing the regions reliance on the natural gas powerhouse of Russia. 

    Russia cut their deliveries of gas to Bulgaria two months after the country invaded Ukraine, and Greece has also been buying less gas from Russia since they invaded Ukraine. Many Baltic countries have done this, so by Bulgaria and Greece starting to grow their own distribution greatly helps the region. The EU and America support this project as well, because of the negative impact it would have to Russia's income and influence in the area. The Baltic region has historically relied on other for help or because they were under the USSR empire. This new move by Greece and Bulgaria decreases the dependency on other countries and will bring valuable income to the region.

https://apnews.com/article/europe-greece-bulgaria-athens-business-4e5636c5b850393440df6b61086c80a8

Dollar bounces back as US economy defies doubters

The US dollar has gained 3% against a basket of other currencies since the start of February as economic data suggests that the US economy remains strong, as the US dollar has recovered from a 10-month low as investors increase their projections for US interest rates after seeing signs of stubborn inflation and strong economic activity. This comes after the currency had fallen more than 11% since October. Investors have raised their forecasts for US interest rates after seeing signs of stubborn inflation and strong economic activity. The US economy added more than half a million jobs in January, and inflation fell to 6.4%, a smaller decrease than expected. While some investors doubt the dollar's rally has much longer to run, the currency is expected to continue to rise this quarter. This increase in the dollar is due to a flurry of economic data that suggested the US economy is still healthy.

https://www.ft.com/content/8f94ecfc-a2f9-4f24-aabf-d700cee981fb

Consumer Debt and Delinquencies rise

 Consumer debt increased across all categories to a total of $16.9 trillion, which is $1.3 trillion greater than a year ago.  Mortgage balances alone increased by $1 trillion from last year despite the drop off in originations.  The mortgage loans in "serious delinquency" almost doubled from a year ago.  While auto loan delinquencies increased by 0.6 percent and credit card delinquencies rose by 0.8 percent, to a total of 4 percent.  According to an economic research advisor for the New York Fed, credit card balances are growing more heavily than mortgages and auto loans, which reflects the pre-pandemic levels.  Although low unemployment rates usually mean a strong financial situation for consumers the high prices and interest rates have been making it difficult for people to repay their debts.

PPI Increases (impact on inflation)

    The producer price index rose 0.7% in January which is slightly higher than the predicted 0.4%. This means that the prices suppliers charge firms for raw materials went up by 0.7%. If production costs increase, this will eventually be reflected in the prices firms charge consumers. The CPI (prices consumers pay for goods) also increased by 0.5%. . Both of these numbers are higher than predicted. One explanation the article gives for the in crease of these economic indicators is that it’s a relatively warm winter which leads to high energy costs which affects production and consumer spending. These increases indicate that inflation is still a problem in our economy. This is significant because the Fed is still trying to combat inflation. The Fed is still expected to continue to increase interest rates in the following month. 

https://www.cnbc.com/2023/02/16/producer-price-index-january-2023-.html

Inflation Persists

 Despite the Federal Reserve's unyielding attempts to slow inflation down by increasing interest rates, inflation still remains unusually high. Inflation was +6.4% in January, which is a decrease of .1% from December but inflation is still around 3 times as high as what it was before the pandemic hit. The issue is as simple as this: the economy won't cool off. The job markets are still booming with extremely low unemployment rates and the economy just keeps growing. The purpose of the Fed increasing the interest rates is to cool off the economy, slowing it down so that inflation will settle. Prices continue to rise at a rate we haven't seen since the 90's and inflation is to blame. We can only anticipate that the Fed will continue their harsh attempts to raise interest rates in order to get a hold on inflation in the near future.

Source: https://www.nytimes.com/2023/02/14/business/economy/january-cpi-inflation-report.html

Recall of Tesla Cars

 An article that I found interesting was the recall of over 362,000 Tesla cars. These cars are known as fully self-driving cars however they were recalled because this program is flawed. It was stated that “ the driver assistance system did not adequately adhere to traffic safety laws and could cause crashes.” Due to this recall the shares of Tesla have been impacted with a decrease of 5.7%. This is a big issue for Tesla because in March they were going to promote more artificial intelligence capabilities in their cars. However, since this recall impacted so many cars and revenues that Tesla is unlikely to promote their next expansion ideas. Overall, this was a very interesting article that shows that advances in technology and the speed in which this technology is being developed can be detrimental to the economy and safety of the population. 

Article: https://www.reuters.com/business/autos-transportation/tesla-recalls-362000-us-vehicles-over-full-self-driving-software-2023-02-16/#:~:text=WASHINGTON%2C%20Feb%2016%20(Reuters),laws%20and%20could%20cause%20crashes. 

China's economic recovery is off to a slow start

In the last few years, China has encountered large setbacks in growth and overall productivity within its market economy. This can be explained through the various lockdowns and restrictions that the Chinese government enforces to prevent a COVID-19 outbreak. In December 2022, China announced a lift on its travel ban which would restrict migrant workers and tourists from coming into the country and contributing to China's overall GDP. This is an essential part of China's economic recovery process, although, it is predicted they will have another slow to moderate growth year in 2023. 

Many migrant workers have returned back to full work activities after the December/January holiday season, allowing for productivity to return to their base number. After all, production in an economy can be solely correlated to GDP growth from both the consumer and producer. These workers are contributing to the production of goods and services which are then bought by consumers and is a process that typically repeats at higher rates over decades of time. Data from the bureau of statistics of labor suggests that inflation has not had as large of an impact on China's economy as they predicted. From a year ago, consumer prices in china have seen a 2.1% increase. Although, food and energy prices have seen a much larger increase in price separate from the cost of many other goods and services.

On top of encouraging inflation rate numbers, road, and subway traffic in cities has returned to pre-pandemic levels. This is likely explained by a large increase in tourism and migrant workers within China due to the lift of the travel ban that China enforced in December.

Some setbacks in China's economy include a decrease in their turnover in freight transport from last year, high unemployment, a decrease in demand for medium to long-term house loans, weak currency, and low new home sales. 

Policy Outlook:

Given current information, policymakers are expected to encourage any and all policies that benefit the domestic economy. Ting Lu, the chief China economist says "We still believe inflation is not a major concern in China this year and we expect policy to remain accommodative in 2023". It is also expected that policy will remain loose in 2023 and will follow a“growth-focused policy pragmatism.”

Finally, Robin Xing, chief China economist at Morgan Stanley believes that GDP growth in 2023 will be around 5.7%. But given the information presented above and the lift of China's travel ban, I am predicting GDP growth in China will be around 7% in the year 2023.

https://www.cnbc.com/2023/02/15/chinas-economic-recovery-is-off-to-a-slow-start.html#:~:text=Preliminary%20economic%20data%20indicate%20overall,Covid%20controls%20in%20early%20December. 

Scrutiny of Major Crypto Institutions is Intensifying

    In 2022 there was a major concern for the crypto market as many were calling for more strict regulations. The current state of the cryptocurrency market is described as a "Dodd-Frank moment". For reference, the Dodd-Frank Act was put into place following the 2008 financial crisis to protect consumers from deceptive financial practices. Many are calling for regulations to be implemented following the disastrous collapse of FTX in November. Currently, in the United States, crypto companies are regulated loosely by the Securities and Exchange Commission, Commodity Future Trading Commission, and various state agencies. Over the past year, we have seen these agencies crack down on multiple firms which were all accused of financial wrongdoing. 

    The main goals for regulators in 2023 are to snuff out instruments that may be used for financial crime and protect consumers. We saw regulators crack down on firms in 2022, such as Tornado Cash which was accused of being employed by North Korean hackers to launder $450 million of crypto. Regulators and authority's main response to potential wrongdoing is to shut down interactions with American firms. All of the actions taken by regulators have prioritized consumer protection by requiring proper disclosures and safeguards.

     There is concern about crypto regulations in the United States, as regulators are attempting to apply existing rules. Former SEC enforcement lawyer Tuongvy Le believes that the lack of imagination when creating and enforcing regulations could hinder innovation. Moving forward in 2023, I believe that we can expect to see more regulations in the crypto market. With crypto being such a complex and innovative market, I think it could be difficult for regulators to impose broad regulations. However, I think this will benefit the financial market and create greater consumer confidence. 

Source: https://www.economist.com/finance-and-economics/2023/02/16/scrutiny-of-major-crypto-institutions-is-intensifying 

A new way to clean up the steel industry

 For every ton of steel produced, 1.8 tons of carbon dioxide are spilled into the atmosphere. Steelmaking accounts for 7-9% of the world’s anthropogenic greenhouse-gas emissions. The use of hydrogen is being explored as an environmentally friendly alternative for the steelmaking process, but all efforts are still in infancy. Because of the immense costs, it could take decades for steel mills to “go green”. The new way to produce steel is done by recycling carbon dioxide.

Scientists and researchers believe that this innovative type of technology could be implemented at current plants for $435 million each, which is quite costly, and is being examined most strongly in Britains steel making industry. Researchers claim that the investment would be paid back in only 22 months by the elimination of expensive metallurgical coke from the process, and from selling any oxygen that was surplus to requirements. Even allowing for a small increase in electricity consumption, implementing the system on both sites would save about £1.3bn over the course of about five years.  There would also, the researchers conclude, be a reduction in carbon-dioxide emissions of 88%, resulting in a countrywide fall in overall emissions of 2.9%.

In regard to my last blog post that mentions the Inflation Reduction Act (IRA) introduced by the Biden administration, does it sound like this technology would be worth the investment by the government? I think yes because it would be targeting a major source of pollution, and would be an important investment for the future of the steel industry, and the workers within it. One problem that could arise is that current workers would either have to learn more about the new technology, or be driven out of the industry. But is this fair?

https://www.economist.com/science-and-technology/2023/02/15/a-new-way-to-clean-up-the-steel-industry

U.S. Households Lifting Economy After Being Stung by Inflation Last Year

 In recent weeks there has been a massive swing from pricing in a recession. The swing has been mostly noticeable in the bond market where the 10 year treasury bond yield has gone back to the percentage it was at last year which was around 4.0%. Investors have concerns as stocks are continuing to lower in the past few weeks, but they have been able to avoid major losses. The outcome of the economy in the future still remains uncertain and there are many possibilities for the fed. With this year off to a strong start to the economy salaries and wages are surpassing inflation at the moment.

The economy has gone up substantially since the beginning of last year, we are on a good path to stabilizing inflation and the economy with it. Wages have gone up and with them going up inflation is slowing not affecting ast much because prices have for the most part stayed the same.  I expect to rise more as the year continues.

Like the Weather, the US Economy Started 2023 Warmer Than Expected

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.

https://www.usnews.com/news/economy/articles/2023-02-17/like-the-weather-the-economy-started-2023-warmer-than-expected

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.

https://www.cnbc.com/2023/02/03/blackouts-currency-dives-and-corruption-pakistans-economy-is-on-the-brink-of-collapse-.html

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

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.mei.edu/publications/already-vulnerable-turkeys-economy-now-faces-massive-earthquake-recovery-costs 

https://www.cnbc.com/2023/02/09/turkey-earthquake-comes-at-a-critical-time-for-the-countrys-future.html

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. 

Article- https://news.yahoo.com/biden-announces-economic-team-led-004325590.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuYmluZy5jb20v&guce_referrer_sig=AQAAAKyl5qJOz-dwytBIy6CTdwKFDyUncCte4oJHxDYLmNs8YQxajOHHlnDOy6QhTtlv_889jpDEyH12naDJpeeALw1m60qJpJgwB6AkrSFzaOi1ViO33r6tgTcyxc974Vc9uizIDREPmRrO2DMpwjh3Ll470ZCevIr6tlPqv8tGFGuH

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

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

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

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

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 

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.

source: https://www.cnbc.com/2023/01/04/the-uk-recession-will-be-almost-as-deep-as-that-of-russia-economists-predict.html

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