The Labor Statistics Labor Statistics Report on October 4th: Implications for Inflation, Growth, and the Second Half of the American Economy
When the Bureau of Labor Statistics releases the October jobs report tomorrow, it will be the final major read of the economy before the midterm elections, and will cap a week of new data showing only tentative signs of cooling off.
Employers added 261,000 jobs last month on a basis that was not adjusted. It was lower than 315,000 in September. The unemployment rate rose to 3.7 percent.
Things are still robust despite the fact that things are slowing down. And that’s part of what is keeping inflation elevated.
The risk of wages going down too much, too quickly raises the risk of falling into stagflation, which is as unpleasant as it sounds. Stagflation – a portmanteau of stagnation and inflation – is when economic activity slows while prices continue rising.
Wage gains in October slowed to 3.8% from 4.1% the month before, and are well off the gains of 5% or more seen earlier this year and many months in the future.
If it comes in well below 250K, you might see some renewed optimism that the Fed’s policies are starting to have their intended effect, and it may not need to keep inflicting pain on the economy.
The Fed’s F-150 Lightning: Pricing the First Model of Electric Vehicles Against Price Increases, a Critique of Belarus’s State Media
It’s hard to overstate just how delicate the situation is. Kristalina Georgieva, the managing director of the International Monetary Fund, has described the world as being in a period of “historic shocks” for the last few years.
That is what is making the Fed’s decisions so closely scrutinized. The US dollar is pushed up by other central banks raising their own rates when the Fed raises itss aggressively, as well as creating a domino effect throughout the planet. All of which could tip the world’s biggest economies into a recession, the UN has warned.
Ford is, once again, raising prices on its first electric pickup, the F-150 Lightning. Citing “ongoing supply chain constraints, rising material costs and other market factors” the company said the entry-level model will be priced at around $52,000 — up significantly from $40,000 when the truck went into production this spring.
(Reuters) Belarus’ President Alexander Lukashenko banned consumer price increases across the economy, according to state media. “From today, any price increase is prohibited. Prohibited!” the president is quoted as saying.
Nightcap (CNN Business) Jobs: The CEO of Peloton, Inc., Is It Really Occurrence?
A source told CNN that lawyers for Musk and his company agreed to keep Musk out of the court fight over their acquisition agreement. Musk was originally going to give a deposition today, but earlier in the week he offered to buy the company in exchange for dropping the litigation. The two sides are still haggling over various conditions.
Boston Dynamics, which makes the four legged robots that have been in viral videos, will not weaponize their products and encourage other companies to do the same. According to a letter Axios reviewed, the company suggests it’s worried that customers don’t, like, believe them when they say they’re not building an army that’ll destroy humanity. Thankfully though, they’ve now said they’re not doing that. That’s right!
(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. Or, as the company spokesman put it, it is on a “transformation journey” where it hopes to achieve break-even cash flow. (I don’t know who writes this bloodless business-speak but, man, I would love to make it stop).
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
Amazon Firefights: Good News, Bad News for the Fed & Predictions for the Next Ten-Year ISM: An Economist’s View
(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. Workers reported that parts of the building still smelled of smoke, as well as being difficult to breathe because of the fire. An estimated 100 workers walked off the job.
Nela Richardson, Chief Economist at the payroll processing firm, believes that this is a great news for the Federal Reserve. You are still hiring even though there is a small decrease in early stage demand.
It’s really hard to get a job this year and four months from now. Tim Fiore, who conducts the survey for the Institute for Supply Management, said that people are more cautious.
He said he viewed the increase in layoffs from the perspective that bad news is good news. “That is, layoffs are awful for those losing their jobs, but it does mean the job market is cooling off, which is critical to getting inflation back down and forestalling more aggressive interest rates hikes by the Federal Reserve.”
Manufacturing is a small part of the workforce. The ISM survey of service-sector businesses was similar to the one that found no slowdown in hiring.
The jobs gains in restaurants, retail and professional services were reported by the payroll processor, Automatic Data Processing.
In the early days of the Pandemic, the United States lost many jobs. The number of workers available is a factor that will affect job gains.
“The more people who come back to the labor market, the more likely we’ll see some loosening in hiring conditions and a continuation of these steady gains,” said Richardson.
August saw a big influx of new and returning workers, as nearly 800,000 people joined or rejoined the labor force. Inflation watchdogs at the Fed will be on the lookout to see if that trend continued in September.
Shortages of both workers and critical supplies have made it hard for businesses to keep pace with strong demand for goods and services. As a result, prices have soared. The Fed thought they would be solved on their own. But despite some encouraging signs — like a drop in lumber and used car prices — inflation remains stubbornly high. Prices in August were up 8.3% from a year ago.
Cook and her colleagues on the Fed’s governing board have made it clear that interest rates will remain elevated until there’s convincing evidence that prices are leveling off.
Cook said that inflation must come down and that the central bank will keep working until the job is done.
The Fed is Hitting Again: The First Three Months After Fed Rate Increases in the U.S. Job Market Retains
The Federal Reserve will increase interest rates for the second time this year next month after fresh data indicated that the health of the labor market was not as bad as previously thought.
The S&P 500 fell nearly 3 percent on Friday, dragged down by interest rate-sensitive sectors like technology stocks. The dollar strengthened and the government bond yields rose.
Economists have been expecting the labor market to cool as higher interest rates make it more difficult for businesses to grow. While other parts of the economy have slumped, hiring has been remarkably resilient.
Despite higher interest rates, job growth did not go away in October, as policymakers tried to control the labor market.
“If I had just woken up from a really long nap and seen these numbers, I would conclude that we still have one of the strongest job markets that we’ve ever enjoyed,” said Carl Tannenbaum, chief economist at Northern Trust.
Take the latest monthly JOLTS survey on job vacancies, quits and layoffs. They had predicted that the number of job vacancies would fall because of the Federal Reserve’s measures to slow business growth. It went from 10 million to 10.7 million.
In normal times, that’s the kind of news worth celebrating. The economic up-is-down economics of 2022 suggest that the economy is overheating. It was this reason, along with other factors, that gave rise to the fourth-straight three- quarter-point hike by the Fed.
“Reducing inflation is likely to require a sustained period of below-trend growth and softening of labor market conditions,” Powell said Wednesday. “Restoring that price stability is essential to set the stage for achieving stable employment and stable prices in the longer run.”
Analysts say the odds of a recession are high. But the Fed is wagering that the pain of a recession is preferable, in the long term, to the pain of runaway prices.
Inflation is a problem for Democrats trying to retain power next week, as they are more likely to think about job security than inflation. Three-quarters of likely voters feel that the country is in a recession, according to a new CNN poll.
Baby Boomer Realization of the American Dream: The Rise of the Real Estate Boom in the Twenty-Year Aftermath of the Great Recession
Cut to 2020 and that narrative got flipped on its head. It wasn’t that Millennials didn’t want homes in the suburbs, they just couldn’t afford them. But when the pandemic hit and demand for property exploded, the furor was driven by people in their 30s — finally flush after years of slogging away at whatever jobs were left for them in the fallout of the Great Recession, and, for many, eager to flee to the wide-open spaces of suburban life.
Baby Boomer parents with sizable investment portfolios were happy to pass on some of the gains from the stock surge to their children.
As the 2020 housing boom goes bust, people who closed on a home in the crush of competition should be extremely lucky.
For a historical comparison, the share of first-time buyers over the past decade has been between 30% and 40%. In 2009, in the middle of the Great Recession, it was high as 50%.
“They have to save while paying more for rent, as well as student debt, child care and other expenses,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. Home prices were going up while mortgage rates were going down.
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!)
Housing is broken. I don’t purport to have a silver bullet, but it’s clear that inventory constraints and outdated zoning restrictions are a big part of the problem.
Rather than rebuilding within existing neighborhoods, housing supply has expanded through “sprawling single-family subdivisions at the urban fringe.” More homes are being put in vulnerable areas, such as wildfire prone regions of the West.
With affordability reaching crisis levels, it is a great time for federal and local governments to rethink how they frame the American Dream. If Gen Z and Millennials are better representation in elected office, that will happen. As Schuetz argues, the upper-middle class Boomers in power now are, understandably, reluctant to change the system that got them where they are.
The UK Central Bank and the Bank of England have hiked the key interest rate in 33 years. After the first round of stimulus measures, the economy has cooled down
The Bank of England raised its key interest rate by the same amount as the Fed Thursday, making it the biggest hike in 33 years. The European CentralBank did the same thing a week ago.
(Side note: “Basis points” are how central bankers talk about rate moves, which usually happen in tiny increments. The basis point is the percentage point.
“The economy has transitioned from white hot to red hot,” said Daniel Zhao, an economist at the career site Glassdoor. “It’s still a very hot labor market but it has cooled down.”
Both parties will use the economy in their closing pitches next week, after a report offered a glimpse of the economy before the elections.
“The data was stronger across the board, and if there’s anything the Fed does not want to see these days, it’s better than expected data,” said Paul Hickey of Bespoke Investment Group.
Economists had expected a smaller rise in the unemployment rate, to only 3.6%. The unemployment rate is calculated using a separate survey of households rather than the employer survey used to count workers on the job.
Several economists said Friday they think the Fed could slow the pace of rate hikes to a half-percentage point, rather than the three-quarters of a point increases it has been approving at recent meetings.
The Season for Jobs in the Context of Inflation: A Brief Review of Employment, Housing and Mortgage Rates in the US and Other Sectors
“No matter how many jobs that I can get in front of this camera and tell you how we’ve added and how great they are, people are still feeling the struggle at the kitchen table,” he said. The inflation reduction act of the Biden administration is working to address rising prices.
Wage growth is one metric the Fed focuses on in addition to employment totals, it can bring about inflationary pressure by putting more money in the hands of consumers and driving demand for goods and services.
In the last year, weekly initial jobless claims have been below 200,000. The 200,000 increase in last week’s claims is an increase over the average but it is still below the number of weekly claims that are consistent with a good economy and a recession.
The number of unemployment claims have been hovering near historic lows due to a labor market that has remained considerably tight, even as workers flooded back after the end of pandemic-era lockdowns.
Yet, those layoffs aren’t necessarily reflected in last week’s claims, as many of the tech industry’s workers are covered by severance payments, said Eugenio Alemán, chief economist for Raymond James. Alemán said he’s looking for signs of a broad-based increase in claims from other industries, in which workers aren’t typically covered by severance payments. “And that is still not happening today,” he said.
Unemployment claims are often revised and volatile around the holidays, according to economists for Oxford Economics.
Freddie Mac’s chief economist said that rates have fallen over the last six weeks, which is good for potential buyers.
There is a long list of housing data. On Tuesday the US Census Bureau will report housing starts and building permits figures for November, followed by Friday’s release of new home sales data for the same month. In between that will be the November existing home sales numbers from the National Association of Realtors on Wednesday, as well as weekly data on mortgage rates and applications on Thursday.
For the past few months, existing and new home sales have been declining because of spiking rates and the fact that home prices are still high for first-time buyers. Building permits have been down from a year ago, but housing starts have been up on a month-to-month basis.
Still, there are some promising signs that the worst could soon be over. Shares of Lennar
(LEN), one of the largest homebuilders in the US, rallied after reporting earnings last week. Analysts had expected revenue to come in higher than the company actually did, but the guidance for next year was a tad higher than expected.
Lennar investors “may be looking ahead to 2023, perhaps crossing the valley from recession to potential recovery,” according to CFRA Research analyst Kenneth Leon.
According to data from Amherst Group, an investment firm that buys single-family homes to rent out, it’s important to put the recent slide in prices in context.
That is quite different from 2008, when many people with bad credit histories were unable to keep up with their mortgage payments.
The economy is not being brought down by housing. The housing market has been affected. But mortgage delinquencies are still low,” said Gene Goldman, chief investment officer at Cetera Investment Management.
There are no companies reporting their latest earnings this week. But the few that are could give more clues about the financial health of consumers and the state of corporate spending.
Cereal giant General Mills
(GIS) will release earnings on Tuesday. Analysts are expecting a slight increase in both sales and profit. People are worried about inflation, but they still eat their wheaties. General Mills shares have increased in value by nearly 30% this year.
Analysts are less optimistic about the outlooks for sneaker king and Dow component Nike
(NKE), used car retailer CarMax
(KMX) and memory chip maker Micron
(MU), whose semiconductors are used in devices ranging from cell phones and computers to cars.
Investors are also going to be paying very close attention to what companies say in their earnings reports about their outlooks for 2023. Analysts expect earnings growth to increase by 5.3% in 2023. That could be too optimistic… especially if companies start cutting their own forecasts due to worries about the broader economy.
“Odds of a recession are pretty high,” said Vincent Reinhart, chief economist and macro strategist at Dreyfus & Mellon. “That will have a knock-on effect for corporate earnings. Weak earnings and higher rates suggest more pain for stocks.
Tuesday: US housing starts and building permits; China sets loan prime rate; Bank of Japan interest rate decision; earnings from General Mills, Nike, FedEx
(FDX) and Blackberry
(BB)
CNN Business News: Fed Rates, Stocks and the Dow & Nasdaq Tumbled as a Broken Goldilocks
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The strong GDP might prompt the Fed to raise rates more quickly than expected, which caused the US stock market to tumble on Thursday. Stocks ended the day off their lowest levels but the Dow still lost nearly 350 points, or 1.1%, while the S&P 500 fell 1.5% and the Nasdaq was down 2.2%.
Investors are hoping for a Goldilocks situation where unemployment falls just enough to convince the Fed that its rate hikes have cooled the labor market enough to end hikes but not enough to cripple the economy. That’s a very narrow path to land on.
What might happen: “Boy the Fed is really committed to this put us in a high unemployment recession thing,” Jon Stewart, former host of The Daily Show, tweeted after Wednesday’s meeting.
There is still hope that if the unemployment rate goes up in the first half of next year, the Fed will shift to more of a recovery role.
“Employment has yet to soften notably, but I think the jobs data is likely to deteriorate meaningfully and quickly,” said finance professor Jeremy Siegel of The Wharton School of the University of Pennsylvania in his weekly commentary for WisdomTree last week.
Powell expressed optimism on Wednesday that a soft landing was still possible and that the labor market was tight enough to withstand an increase in unemployment without snowballing into a recession. People will be watching jobs numbers very closely.
The Rise of Super Saturday: Why Bankman-Fried is a House of Cards and a Tower of Deception, and How to Buy Christmas Presents
It is not known when Bankman-Fried will appear in court. He would likely come back to the US quickly if he waives his extradition. He will be appearing before a judge for an hearing after he arrives in the states.
Last Tuesday, federal prosecutors from the Southern District of New York charged Bankman-Fried with eight counts of fraud and conspiracy. If he is convicted of all the charges, Bankman-Fried could be sentenced to a maximum of 115 years in prison.
On top of that, US market regulators filed civil lawsuits accusing Bankman-Fried of defrauding investors and customers, saying he “built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto.”
The Saturday before Christmas — also known as Super Saturday — is typically the busiest shopping day of the November-December gift-buying period. Christmas Day is on a Sunday, and Christmas Eve is on Saturday, so Super Saturday is on December 17th. 158 million consumers are believed to be shopping on that day according to the National Retail Federation.
The NRF estimates that people have only completed half of their gift purchases. With less than a week to go until Christmas, people have a lot more buying to do.
Source: https://www.cnn.com/2022/12/19/investing/premarket-stocks-trading/index.html
The Federal Reserve’s Last Attempt to Control the Growth of the Nation’s Economic Activity and Its Impact on the Consumer Spending During the Holiday Season
Retailers sitting on an oversupply of merchandise can be costly. Retailers who store merchandise in their own warehouse and distribution centers have a finite amount of space to work with, with some wiggle room to accommodate excess inventory. If they need more space for a long time, costs add up.
Over time, unsold products lose value. savvy shoppers won’t buy last year’s style if the trend has passed Retailers are forced to heavily discount, which leads to lower profitability.
Well ahead of the final full weekend before Christmas, stores this year were already offering discounts of 50% to 60% off, and tacking on free shipping for online orders.
“I’ve studied the holiday season for 20 years and haven’t seen discounting so dramatic,” said Ross Steinman, professor of consumer behavior at Widener University in Chester, Pennsylvania.
“Retailers are very nervous,” he said. “The clock is ticking and they know they have to maximize every opportunity now to get consumers to make purchases.”
The Federal Reserve has been trying to control the economy to fight inflation, but it seems that the fight is having a limited effect.
The final GDP report is a backward looking reading that shows the state of the economy three months ago. Growth in the current period is projected to be 2.3%, a significantly slower pace than Thursday’s reading.
The report states that the stronger-than-expected reading is due to increases in exports and consumer spending that were partly offset by a decrease in spending on new housing. Consumer spending contributes more than 50% of the nation’s economic activity.
“The reality of the Federal Reserve’s determination is sinking in,” said David Kotok, chairman and chief investment officer at Cumberland Advisors, referring to efforts to get the economy back on a path towards 2% inflation. “”I don’t see how a recession is avoidable unless the Federal Reserve changes its policy.”
The Rise of the Fed, the Consumer Confidence, and Job Creation in the U.S. After a Cool Inflationary Year
The head of Truist Advisory Services said that part of the wide swings is that many traders and investors are on vacation with each new data.
The US economy has not weakened despite the recent cooling of inflation. Some surveys released this week suggest the Fed’s higher rates are not slowing spending by businesses or consumers.
Chief financial officers think the current levels of interest rates have not changed their spending plans. And consumer confidence improved in December according to a survey by the Conference Board, reaching the highest level since April.
In addition, employers have continued to hire at a historically strong pace, although layoffs have increased in some industries, especially technology.
Continuing claims, which include people who are collecting benefits on an ongoing basis, dropped slightly to 1.672 million for the week ended December 10. The number of continuing claims was revised up in the previous week.