The impact of wage growth and labor shortages on wages in the United States and the problem of inflationary incomes for people with low or no disposable incomes
Wages increased over the past year in the jobs report. That’s historically high (woo!) Inflation is around 8% a year and it doesn’t keep up with the cost of living.
Inflation is not just a function of the price of oil and other commodities and production costs like manufacturing and shipping. The amount of money people are earning is also important to the inflation picture.
When people have more money in their wallets (virtual or good old-fashioned leather ones), they tend to be more willing to spend it. Companies are able to raise prices.
The problem is that wage growth above 5% is still historically high. Wages usually increase by 3% a year prior to the swine flu. But labor shortages, due to Covid-19 and people dropping out of the workforce, shifted power from employers to employees when it came to worker pay.
The Inflationary Landscape isn’t Going to Hurry: Consumer Perspectives on the Predictions of the U.S. Central Bank
The government said the PCE was up 6.2% from a year ago in August. That was lower than July’s reading.
What’s more, the Fed typically is looking for just a 2% growth rate in the headline PCE number as a sign of price stability. That is not going to happen soon. In fact, the Fed’s latest forecasts suggest that the central bank thinks PCE will rise 5.4% this year, up from projections of 5.2% in June.
Retail sales have held up relatively well despite inflation pressures, but Norton warns that can’t last forever. Shoppers in the United States would eventually reach their breaking point and start buying essentials. Slower economic growth will lead to lower prices, but also a decrease in consumption.
The Third and Fourth Quarters of the Dow, Gold, Silver, and Bitcoin Markets: What will we learn from October? We’re going to have a great time in October
The third quarter is mercifully over. It’s been another doozy for the market. September in particular was bleak. It was the worst month for the Dow since the start of the pandemic in March 2020.
But even though we’re seemingly in a bear market for everything as bonds, gold and bitcoin have all tumbled this year as well, there are some hopeful signs for the next few months.
Wall Street typically celebrates the fourth quarter. During the holidays investors tend to buy stock in anticipation of robust consumer shopping Businesses tend to spend more money to get their budgets under control. Large companies give good guidance for the coming year in October.
Hirsch added that a dozen bear markets since World War II have ended in the month of October. There were seven market bottoms during the election years.
Traders will definitely be keeping close tabs on Washington this fall to see if Republicans gain control of the House. The investors tend to like that, so it’s possible there will be more gridlock in DC.
There are concerns about inflation, interest rates and the global economy so whether or not Corporate America and investors are going to be so bullish this October is up for debate. October is famous for huge crashes recently, including in 2008 and 1987, as well as 1929.
Christopher Wolfe is the chief investment officer of First Republic Private Wealth Management. A lot of companies are for sale. It is a time to be patient.
Economic Outlook During the Financial Crisis: Implications for the Future of the United States and the Cosmic Microwave Background Anisotropies
US weekly jobless claims; earnings from ConAgra and other companies.
Some of the predicted recessions are more serious than others. Like this one: Almost two-thirds of corporate economists believe the United States is already in a recession or will be within the next 12 months, according to the latest survey from the National Association for Business Economics.
Despite claims of an early 2023 recession, some economists and policymakers have said there are robust job growth and consumer spending. During a news conference last month, the Federal Reserve Chairman said there’s still a path to get inflation under control without sparking a downturn.
I don’t think that’s a bad sign, but I think that we had a period of very substantial stimulation during the financial crisis, and I think another side of that is likely.
The US economy has been odd this year to economists and analysts. On the one hand, GDP growth has slowed significantly, and some argue, even entered a recession. On the other hand, overall employment growth has been much stronger than normal.
The path has gotten more narrow as the Fed has been forced to raise rates to fight inflation.
The way we need to think about this is not using fire drills when there is an oil price problem. “It’s reducing our fundamental dependance on unstable and problematic parts of the world for our energy.”
Saudi Arabia and Russia said Wednesday that they will reduce oil production by more than 2 million barrels per day in the biggest cut since the beginning of the swine flu epidemic, threatening to push prices higher just a few weeks before the US elections.
In a statement on Wednesday, the Biden administration said that the decision by the group of oil Producing countries would hurt low and middle income countries the most.
The Fed is Back: An Inflation Puzzle Surrounding the White-Hot Economy and the Wall Street Sweeping Throat
When the Bureau of Labor Statistics releases its October jobs report on Friday, it will be the last major read of the economy before the midterm elections — and it will cap a week of new data signaling that the white-hot labor market is showing only tentative signs of cooling off.
The US economy added 2.3 million jobs over the last half-decade despite the GDP decline of 1% in the first half of the year.
So, while things are slowing down, they’re still pretty robust relative to those pre-pandemic normal times. And that’s part of what is keeping inflation elevated.
Once again, and yes it sounds crummy, but the Fed and others would be happy to see wage growth slow down. When we cut back on purchases, prices go down because of less money in our wallet. It is in theory. That is one part of a larger inflation puzzle.
BOTTOM LINE: If Friday’s headline number comes in above 250K, Wall Street may read that as a sign the Fed is going to have to keep raising interest rates, adding to already-significant strain across financial markets.
It’s hard to overstate just how delicate the situation is. Kristalina Georgieva, the managing director of the International Monetary Fund, today characterized the world to be in a period of “historic shocks” after a torrent of economic shocks over the last few years.
The Biden administration and Congress have stayed out of the way of the Fed’s efforts to control prices because of polls showing that inflation is a big concern for voters. The central bank’s approach has begun to be challenged by Democrats, who are worried that rates will put a lot of people out of work.
Nightcap Jobs Report: Nightcap Pricing of a First Ford F-150 Elliptically Upgraded Truck and the President’s Deposition
Ford is, once again, raising prices on its first electric pickup, the F-150 Lightning. The entry-level truck will cost an average of $52,000 due to rising material costs, supply chain constraints and other market factors.
According to the state media, the President banned price increases in the economy. “From today, any price increase is prohibited. Adhered to! The president was quoted as saying that.
The lawyers for Musk and the company agreed to delay his deposition, a source familiar with the negotiations told CNN. Musk offered to buy the company under the original terms of the deal in return for dropping the litigation, but he was not scheduled to give a deposition today. The two sides are still haggling over various conditions.
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
The Times report on the Boston Dynamics investigation of a work stoppage after a fire at a unionized warehouse in Staten Island, New Jersey
Boston Dynamics is not going to weaponize their products or encourage others to do the same, according to a promise made by the company. According to a letter from the company, it is worried that customers will not believe them when they say they are not building an army that will destroy humanity. Thankfully though, they’ve now said they’re not doing that. Phew!
(CNN Business) Peloton announced yet another round of layoffs — its fourth round of cuts this year — as its new CEO attempts to shore up the company’s bottom line. In fact, the company said that it is on a “transformation journey in which it isoptimizing efficiencies to achieve break-even cash flow.” There is a (I don’t know who writes this bloodless business-speak but, man, I would love to make it stop).
(CNN Business) Amazon suspended roughly 50 workers at its only unionized warehouse Tuesday after they organized a work stoppage following a fire at the facility. The JFK8 facility in Staten Island was destroyed by fire on Monday, with workers saying parts of the building still smelled of smoke. There were 100 workers walking off the job.
The U.S. Job Market Hasn’t Been Affected by the Inflationary Rise of the 2000 Low-Cost Wall Street Rate
Higher rates slow inflation by cooling consumer demand and allowing supply to catch up, paving the way for more moderate price increases. But in the process, they slow down hiring, weaken wage growth, prompt job losses and ripple through financial markets in sometimes disruptive ways.
Many countries are raising rates so quickly that it is difficult to know how intense a downturn will be once it takes full effect. Monetary policy can take months or years to start.
The UN agency warns that there might be a danger or excess of doing it, particularly in poorer nations. Developing economies had already been dealing with a cost-of-living crisis because of soaring food and fuel prices, and now their American imports are growing steadily more expensive as the dollar marches higher.
Editor’s Note: Gad Levanon is the chief economist at the Burning Glass Institute. He was the former head of The Conference Board’s Labor Market Institute. The opinions expressed in this commentary are his own.
Why has employment growth remained so strong? First, the US economy is holding on better than many expected. The Atlanta Fed thinks that the economy is growing at a slower rate than last year but we are still not in a recession. When there is a rise in demand for goods and services, so does there be an increase in the number of workers making them.
Take the latest monthly JOLTS survey on job vacancies, quits and layoffs. Tuesday’s report surprised economists, who had predicted that the number of job vacancies in the United States would fall amid measures by the Federal Reserve to slow business growth in order to tame inflation. It went from 10 million to 10.7 million.
Fifth, during the pandemic, corporate investments in software and R&D reached unprecedented levels, which drove a rapid increase in new STEM jobs. Because these workers are especially well paid, they have had plenty of disposable income to spend on goods and services, which has supported job growth throughout the economy.
These factors are spurring positive momentum that will not disappear overnight. Employment growth is likely to slow down from its historically high rates, but it will still remain solid in the coming months. The hiring intentions for the fourth quarter are still high despite the fact that they dropped from the previous quarter.
Reducing the demand for workers or increasing the labor supply are two different ways to rein in the labor market. But it’s hard to engineer a boost in labor supply. Legislative action is needed to increase immigration, drive people into the labor force or invest in workforce training. This is likely to prove elusive in today’s polarized political environment.
The Rise of Consumer Prices: An Inflationary Viewpoint Towards a More Efficient and Perturbed State of the Economy
Mr. Biden said the report showed “some progress” in combating the increases, noting that costs have climbed by less over the past three months than they had in the prior three months. He acknowledged that the rate of inflation remained high.
Less than a month ago, Fed Chair Powell said rates would stay higher for longer. Investors may be in for another letdown as sustained price pressures in housing, wages and energy mean the central bank still has a long way to go in its battle against inflation.
Fed policy takes time to work, and most economists would not expect this year’s adjustments to be pulling inflation drastically lower yet. But because rate moves work by slowing consumer demand, one might expect their effects to show up in everyday consumer goods and services categories first. That hasn’t happened yet. From restaurant meals to cigarettes to stationery products, prices continue to climb briskly, suggesting consumers are still willing to pay up.
What Does the Stock Market Really Tell Us About the State of the Economy? An Analysis of Why the Fed and Main Street are Trying to Avoid a Recession
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
So what gives? Nomi Prins, a former managing director at Goldman Sachs, is the author ofPermanent Distortion: How the Financial Markets Abandon the Real Economy forever. Wealthy Americans and corporations benefited directly from years of low rates, which kept money flowing into businesses and stocks high while Main Street suffered from decelerating wages and little support. Prins says we are now dealing with a “permanent distortion,” where market behavior and economic prosperity have nothing to do with each other.
What’s happening: The stock market has always been unpredictable. Analysts and economists try to prognosticate or apply some type of rational explanation to market moves, but the reality of it is that it’s often conjecture (strong, educated guesses but still guesses).
The central bank is charged with a dual mandate: maximize employment (check) and ensure price stability (uncheck). Ideally, the Fed wants to keep everyone’s jobs and not hike consumer prices too high, so that they can take a break from the heat of the market. Powell still considers it possible but most economists say the likelihood of that is remote.
The bulk of this stimulation flowed into the market and made it dependent on the Fed, and this created a world where investors became dependent on it and the larger economy suffered.
The credibility problem: When the Federal Reserve began raising rates earlier this year, officials publicly explained how important their credibility is to successfully lowering inflation rates. If the Fed is to succeed, they said, Americans would need to believe that the central bank is steadfast in its fight to bring down prices.
The hope is that inflation pressures will finally abate so that the Fed can talk about small rate hikes to avoid a recession.
Meanwhile, she says, it’s Main Street, not Wall Street, that’s feeling the brunt of these interest rate hikes, through increased mortgage and borrowing rates and a slowing jobs market.
The high inflationary environment has led companies to raise prices by over 50%, but the latest survey shows some prices are beginning to come down. The biggest share of respondents said prices were falling.
Shortages of raw materials and labor continue to hinder businesses’ operations, according to the survey. The share of people reporting shortages was close to a record.
Why is Rishi Sunak so frustrated with his job? The impact of the economic crisis on the UK and on the underlying motives of the politicians
Rishi Sunak, Britain’s third prime minister in seven weeks, will face the huge challenge of projecting stability after a period of historic political and financial market chaos. But his other task — shepherding the country through a recession — is poised to be just as daunting, reports my colleague Julia Horowitz.
Sunak campaigned for the job over the summer with promises to help households tackle the rising cost of living, which is causing many to pull back spending. He said he would reduce taxes once the price pressures decreased.
The market turmoil unleashed by the now-abandoned plan to slash taxes as soon as possible and boost government borrowing has caused the economic outlook to deteriorated sharply.
▸ Microsoft
(MSFT), Alphabet
(GOOG), Visa
(V), Spotify
(SPOT) and Chipotle
(CMG) report third-quarter earnings after market close.
Plus: The Conference Board is expected to release October Consumer Confidence which measures the level of confidence consumers have in the economy at 10 a.m. ET.
There is no recession. At least not at the moment. Data on the country’s gross domestic product released Thursday showed growth in the economy. Here is the GDP data.
Try to find out the political message about people losing their jobs being a good thing. The Democrats messaging seems confusing, which is why Republicans have found so many success in blaming them for inflation this year.
The Price of Halloween Candy: Why the Fed is Higgsless, and Why We’re Not Here to Save You from The Problems Of The First Mile in a Marathon
Kevin McCarthy pointed out the price of Halloween candy has gone up. Republicans blame government spending and Democrats for causing the inflation, which is partially true, but also dismisses the fact that supply chain kinks and the war in Russia have also contributed.
Democrats have also targeted corporations, particularly oil companies, for using the excuse of inflation to pad their profits. Mars company was recently called out by Senator Sanders over their prices for candy.
It’s not all bad news: The first mile in a marathon matters. A soft landing, where inflation eases without a recession, is still possible, according to the latest report. It’s also good for markets.
Rana Foroohar of CNN stated that the good news is that the Fed’s rate hikes are supposed to make the economy grow, and they’re doing that.
Foroohar said that the US is the cleanest dirty shirt in the closet and wearing less dirty laundry isn’t a great feeling, but it might be better than alternatives.
George has a determination to control inflation, like her colleagues on the rate-setting committee. She cautions against raising rates at a time of uncertainty in the economy.
“No matter how many letters Democrats write to Powell, the Fed chair has pledged to stay out of politics and base the central bank’s decisions solely on what is happening in the economy,” Egan writes. “The White House has repeatedly stressed it respects the Fed’s independence, a significant shift from the Trump administration.”
Since March, the central bank has raised its benchmark interest rate by 3 percentage points, and is expected to add another 1/3 of a point at this week’s meeting. Since that’s the most aggressive string of rate hikes in years, it hasn’t done much to bring prices under control.
Greg McBride, chief financial analyst at Bankrate, said “Interest rates have risen at a whiplash-inducing speed, and we’re not done yet.” “It’s going to take some time for inflation to come down from lofty levels, even if we start to see some improvement.”
Annual inflation in September was 6.2%, according to the Fed’s preferred yardstick — unchanged from the month before. The Consumer Price index shows prices increasing at an annual rate of 8.2%.
The Real Deal: The Case for a Long, Slow, and Steady Housing Downturn and the Plethora of Jobs in the United States
Esther George, president of the Federal Reserve Bank of Kansas City, said there is a “bit of a savings buffer” still sitting for households that could allow them to keep spending. “That suggests we may have to keep at this for a while.”
“I have been in the camp of steadier and slower [rate increases], to begin to see how those effects from a lag will unfold,” George said last month. “My concern being that a succession of very super-sized rate hikes might cause you to oversteer and not be able to see those turning points.”
Kansas City homebuilder Shawn Woods said his company has gone from selling a dozen houses a month before the Fed started raising rates to fewer than five.
“Never in my wildest dreams would I have thought we’d go from 3% to 7% within six months,” Woods said.
“I think it’s going to be rough for six to eight months,” Woods said. “Typically, housing leads us into downturns and it leads us out of downturns. I think that we’ve been in a housing downturn since March or April.
In normal times, this kind of news is worth celebrating. It is an issue for concern as it indicates that the economy is overheating. That is part of why the Fed hiking its interest rates for a 4th-consecutive three-quarter point hike, the latest in a series of aggressive moves that would be unthinkable a few months ago.
There are 1.9 jobs for every person looking for work, a margin the Fed fears is keeping inflation high. With plenty of choices, workers are demanding higher wages and with few applicants, managers are passing on higher pay in order to boost demand and drive up prices.
Unfortunately for Democrats trying to hold on to power next week, the pain of inflation appears to be outweighing any positive sentiment about job security. According to a new CNN poll, three-quarters of likely voters already feel like the country is in a recession.
Back in the day, the main narrative on the housing market was that young people were not buying. They were either too cheap, lazy, or itinerant to commit to something as weighty as a mortgage.
Baby Boomer parents with large investments were happy to pass on the gains from the stock market surge to their children.
Mortgage Rates Are Going Up, and the Boom is Winning: A Survey of First-Time Buyers in the June 2020 Real Estate Boom
Those who managed to get a mortgage for a home in the crush of competition should be extremely lucky as the 2020 housing boom ends.
Here’s the deal: On Thursday, a new report showed that first-time buyers made up just 26% of all homebuyers in the year ending in June — an all-time low over the four decades that the National Association of Realtors has been conducting its survey.
Jessica Lautz is the vice president of demographic and behavioral insights at the National Archives and Records Administration. Home prices have increased while mortgage rates are climbing.
Oh yeah, one other thing: In addition to mortgage rates going up, home prices also shot up, with the median peaking at $413,800 in June. (Imagine your starter home clocking in at 400 grand!)
The policies that regulate land use and housing production make it difficult to add more homes in desirable locations, according to Jenny Schuetz.
Instead of rebuilding within existing neighborhoods, the housing supply has expanded through subdivisions at the urban fringe. People and homes will be put in areas that are vulnerable to wildfire.
The time is right for federal and local governments to consider how we frame the American Dream. But that will only happen if those who stand to benefit — Millennials and Gen Z — are better represented in elected office. Schuetz says that Boomers are unwilling to change the system that has gotten them where they are.
The Fed and Central Bank of England stepped up to the same extent on Thursday: The same bank hike, and what did Britain and the UK do?
Hot on the heels of the Fed’s fourth-straight 0.75 percentage point rate hike, the Bank of England followed suit Thursday, raising its own key interest rate by the same amount — its biggest hike in 33 years. The European Central Bank did the same thing.
(Side note: “Basis points” are how central bankers talk about rate moves, which usually happen in tiny increments. A basis point is a percentage point.
Bill Adams, chief economist for Comerica Bank, wrote in a note that if the Fed doesn’t tighten as aggressively, the economy will weaken less and there will be less negative effects on the stock market.
Wall Street’s most powerful investment bank remains cautiously optimistic while investors and some models warn that a recession is imminent.
Economic growth has been more sustainable but still positive, and it looksdurable, according to Goldman. The bank thinks that gross domestic product will grow by 1% in the next year.
Goldman says there has been less progress on the price side. Inflation metrics haven’t gotten any better as of late but have mostly stopped getting worse.
The United Kingdom is the only G7 economy to have contracted in the third quarter and is now 0.4% smaller than it was at the end of 2019, before the coronavirus pandemic began, according to the ONS.
Most industries fell due to manufacturing, which saw a significant decline. Services were flat overall, but consumer-facing industries fared badly, with a notable fall in retail,” ONS director of economic statistics Darren Morgan said in a statement.
The extra bank holiday for Queen Elizabeth II’s funeral on September 19 also played a role, as some businesses closed or adjusted their operations that day, the ONS said. GDP declined by 0.6% in September.
James Smith, developed markets economist at ING, said in his note on Friday that lower consumer spending is likely to push GDP into a contraction during the fourth quarter.
The Bank of England warned last week that the UK economy could be in a recession. France and Germany had a contraction of 0.4% in the third quarter.
The euro zone will likely be in a recession in the fourth quarter because of inflation and rising interest rates, the European Commission warned on Friday. It now expects inflation to peak at the end of the year at a rate of 8.5%.
“As inflation keeps cutting into households’ disposable incomes, the contraction of economic activity is set to continue in the first quarter of 2023,” the Commission said in a statement.
That would be the longest since World War II and eclipse the downturn that followed the 2008 global financial crisis, though the central bank said that any declines in GDP heading into 2024 would likely be relatively small.
Weak economic growth piles pressure on the UK government as it tries to restore credibility with investors following a run on the pound and a bond market crash in September, triggered by former Prime Minister Liz Truss’ plan to slash taxes while boosting spending and borrowing.
Finance Minister Jeremy Hunt reversed most of her plans in his first few days on the job, and is expected to announce hefty tax rises and spending cuts next week in a bid to reduce debt in the medium term.
Responding to the latest GDP figures, Hunt said: “I am under no illusion that there is a tough road ahead — one which will require extremely difficult decisions to restore confidence and economic stability. But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.”
Investing in the Premarket: The Misfortune of Digital Assets After the Inflationary Decline and the Great Thaw
The inflation indicator came in softer than expected, which caused stocks to surge on Thursday in their best day since 2020. The investors broke out their party hats as they read the report to conclude that peak inflation may have come to an end. The Fed could be less aggressive with its rate hikes.
Increasing inflation and rising interest rates were expected to drive investors away from the dollar into gold and other alternative assets. They’ve been in for a rude awakening this year, reports my colleague Paul R. La Monica.
Unfortunately, those assets have gotten hit just like stocks and bonds, proving there really is no place to hide in a market where worries about rate hikes and recession reign supreme.
On the heels of near-zero interest rates and a big influx of investors from large-scale institutions, there was a big thaw in the space of six months. It hit a record high of nearly $70,000 in November.
The dollar strengthened as central banks started raising rates to control inflation, and investors became wary of safe havens. The economy soured and those investors who still believed in the risks of investing in bitcoins left in droves.
In the mid-2020’s, they have gained a lot, despite the fact that it went straight up and down. Over that longer time horizon, digital assets are still outperforming tech stocks,” said Jeff Dorman, chief investment officer at Arca, a firm that specializes in crypto.
Source: https://www.cnn.com/2022/11/11/investing/premarket-stocks-trading/index.html
The Fed is Making It Up, and Investors are Predicting the Inflationary and Consumer Price Index Rises Over The Last 12 Months
“The housing market is the most interest-rate sensitive segment of the economy, and the impact rates have on homebuyers continues to evolve,” said Sam Khater, Freddie Mac’s chief economist. “Home sales have declined significantly and, as we approach year-end, they are not expected to improve.”
The traders are predicting a half-point increase. Federal funds futures on the Chicago Mercantile Exchange show an 80% probability of a half-point hike.
It may not be that simple. The Producer Price Index, used by the government as a benchmark for wholesale prices, rose 7.4% over the past 12 months, it was reported Friday. That was a bit higher than the expected rate of 7.2% but a marked slowdown from the 8% increase through October.
The Consumer Price Index data for November will be released a day before the Fed announcement. The year-over-year increase in the inflation rate has been 7.7% through October.
The Fed may look to raise their rate by just a quarter point early in the future, according to Jones. She conceded that the Fed is making it up as they go along.
So investors are going to need to pay attention not to just what the Fed says in its policy statement about rates and what Powell talks about in his press conference. The Fed will release projections for GDP, job market, and consumer prices on Wednesday.
The Fed may think that the likelihood of an economic downturn is increasing. The central bank may be able to prevent a recession if it begins to reduce interest rates in the next couple of years, but they will not start cutting them until at least 2024.
“A pivot or pause is not a cure-all for this market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. Rate cuts may be too late. The risks of a recession are still high.
Source: https://www.cnn.com/2022/12/11/investing/stocks-week-ahead/index.html
What Investors Should Look For When Inflation or Disinflation Comes into Focus: A Comment on Cosserat’s Business Strategy
Perhaps consumers were getting a head start on holiday shopping. Inflation has an effect on the numbers since people have to spend more money for things.
Everybody is talking about inflation this year. Cosserat said that disinflation in 2023 or 2024 is going to be more about.
What does that mean for investors? Cosserat said people should look for consumer companies that can retain their profit margins, and that still have pricing power. He said that his firm owned two stocks, including a luxury goods seller and a cosmetics giant.
Earnings from Adobe (ADBE), Affirmative (Affirmative) and others will be reported on Friday.