Inflationary Patterns in the U.S. Consumer Price Landscape and The Implications for Personal Consumption Expenditures
Wage growth, the amount of money earned per hour, rose 4.7% over the previous 12 months in October. But year-over-year wage growth perked back up to 5.1% in November. Economists are predicting that wage increases cooled a bit, to 5% annually, in December.
Inflation is not just a function of the price of oil and other commodities and production costs like manufacturing and shipping. The inflation picture is influenced by how much workers take home in their paychecks.
People tend to spend more money when they have more money in their wallet. That gives companies additional flexibility to raise prices.
Wage growth did not keep up with consumer price increases which averaged 8.2% in the most recent Consumer Price Index. The slower pace of wage increases in this report indicate that it will be even harder for American consumers to pay the higher prices.
The government reported Friday that its preferred inflation metric, personal consumption expenditures (PCE), rose 6.2% from a year ago in August. That was lower than July’s reading.
Policymakers projected PCE inflation would remain above the 2% target until at least 25 years from now. Unemployment will rise to 4.6% by the end of 2023 and remain at that level through the decade, as projected by Fed officials in new projections. That’s 0.2 percentage points higher than the 4.4% rate they were expecting in September and significantly higher than the current 3.7% rate.
The Third, Fourth, and Final Day of the U.S. Retail Retail Sales Decays: Comments on a Big Bad Day for Wall Street
US retail sales fell 0.6% in November, the weakest performance in nearly a year. Analysts say sales will continue to be weak, and retailers will suffer.
The third quarter is over. It has been another bad day for the market. It was bleak in September. It was the worst month for the Dow since the start of the pandemic in March 2020.
This isn’t the first time that there has been a so-called crypto winter. Bitcoin prices have been notoriously volatile over the past few years, but they have still done better than many major stock market indexes.
The fourth quarter is typically a festive time on Wall Street. Investors tend to buy stocks in anticipation of robust consumer shopping during the holidays. Businesses spend more money in order to rid their yearly budgets. In October, major companies give rosy guidance about the coming year’s earnings.
“October has been a turnaround month—a ‘bear killer’ if you will,” said Jeff Hirsch, editor-in-chief of the Stock Trader’s Almanac, in a recent blog post.
The Fourth of October: An Overview of the First Republic Private Wealth Management, First Republic Investments, First Recession, and Jobless Claims
If the Republicans gain control of the House this fall, traders will keep a close eye on Washington. That could lead to more disagreement in DC, which investors tend to like.
Whether or not Corporate America and investors are going to be so bullish this October is up for debate given the concerns about inflation, interest rates and the global economy. In 2008 and 1987 October is known for huge crashes, but it’s also been famous for Crashes of 1929 and 1987.
First Republic Private Wealth Management’s chief investment officer says that they are close to a bottom. A lot of companies are on sale. It is a time to be patient.
US weekly jobless claims; earnings from ConAgra and others.
While layoffs have gone up, quits and hires have gone down, and the number of jobs added each month has started to trickle down.
Even though the unemployment number may have been too low for investors to like, it is important to remember how much growth has stopped since the Fed began raising interest rates. The 263,000 jobs added in September are a lot fewer than the 431,000 jobs added in March.
It’s also worth noting that the job market is still strong and wages are growing. What’s more, many consumers still have decent levels of excess savings thanks to pandemic era government stimulus.
“This would still be a bit too hot, but any sizeable drop would provide Fed officials with a proof of concept for the idea that gradual labor market rebalancing can dampen wage and eventually price pressures without a recession,” they write.
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. In fact, just today the IMF’s managing director, Kristalina Georgieva, described the world as being in a period of “historic fragility” after a torrent of economic shocks over the last two-and-a-half years, from the pandemic to the war in Ukraine.
It’s a recipe for widespread turmoil and even a recession. Despite that, the Fed is poised to continue raising interest rates. The Fed is in charge of domestic economy goals, which includes keeping inflation slow and steady while fostering maximum employment. While occasionally called “central banker to the world” because of the dollar’s foremost position, the Fed goes about its day-to-day business with its eye squarely on America.
Nightcap Jobs Report: The Musk-Twitter Agreement is Going Through a Preliminary Test of the Terms of a $44 Billion Acquisition Agreement
Ford has raised prices on its electric pickup before. 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.
The President of Belarus, Alexander Lukashenko, has banned increases in consumer prices, according to state media. “From today, any price increase is prohibited. Prohibited!” the president is quoted as saying.
(CNN Business) Lawyers for Elon Musk and Twitter have agreed to postpone Musk’s deposition in the court fight over their $44 billion acquisition agreement, a source familiar with the negotiations told CNN. Earlier this week, Musk said he would purchase the company in exchange for scrapping the litigation, even though he had originally planned to give a deposition today. The two sides are still talking.
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
The Axios Four-Legged Robot isn’t a Demonstration of Human Nature or a Threat to Humanity
Boston Dynamics, the company behind the four-legged robot that became popular online, pledges not to weaponize their products and encourages others in the industry 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, they say they are not doing that. Phew!
A fourth round of layoffs was announced by the company as its new CEO attempts to shore up the bottom line. The statement from the company says that it is on a transformation journey in which it is “optimizing 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) About 50 workers were suspended at Amazon after they went on strike following a fire in the warehouse. A fire broke out Monday at the Staten Island facility, known as JFK8, and workers reported that parts of the building still smelled of smoke and that it was difficult to breathe. The workers walked off the job.
The Boom of Inflation in the United States, and a Rise of Employment, Jobs, and Bursts in the Lee County Economy
Meteorologists tell us that global warming has created new problems for forecasters. It is difficult to issue early warnings of hurricanes because they are intensifying more quickly than in the past. Notably, officials in Florida’s Lee County waited for definitive evidence that they would be hit hard by Hurricane Ian before ordering evacuations — and by then it was too late for many people.
Is there something similar with economic policy? I wrote about the growing chatter from economists and business people to the effect that the Federal Reserve is slowing the economy because of inflation. The buzz has increased since then. I think the Fed is getting behind the curve despite the disappointing inflation report and the fact that it still looks like a robust job market.
Higher rates slow inflation by cooling consumer demand and allowing supply to catch up, paving the way for more moderate price increases. They slow down hiring, weaken wage growth, cause job losses and ripples through financial markets that are sometimes disruptive.
There is no clear answer to how much pain these moves will cause, as many countries are raising rates so quickly they are difficult to determine how intense a slowdown will be. It takes months or years for monetary policy to kick in.
Many economists and international bodies say there is a danger of overdoing it, with the UN warning that the damage could be more severe 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: Erik Lundh is a principal economist at The Conference Board. The opinions expressed in this commentary are his own. CNN has more opinion.
A lot of economists and analysts think that the US economy is going well. On the other hand, GDP growth has slowed considerably, and some think that it entered a recession. Employment growth has been much stronger than normal.
That’s because in this good-is-bad economy, inflation and unemployment have an opposite relationship — higher wages mean higher inflation as companies pass on higher costs by raising the price of goods. The investors worry that a strong jobs report will make the Fed increase their rates.
The last recession’s deep scars on the labor market appear to have been avoided for the most part. Long-term unemployment has been low for 20 years. The overall unemployment rate hasn’t been lower than this since the 1960s. Defying claims that “no one wants to work anymore,” 80.2 percent of Americans in their prime working years had jobs in September, above the rate in the year before the pandemic.
Employment is surging back in several industries hit hard during the pandemic, including health care, food services and the arts — but industries that are more sensitive to interest rates, such as finance, residential construction and car dealerships, are showing declines, Pollak said.
In his commentary last week, Jeremy Siegel of The Wharton School of the University of Pennsylvania stated that the jobs data is likely to deteriorate meaningfully and quickly.
Reducing demand for workers is one of the two ways to rein in the labor market. It is difficult to increase labor supply. That takes the kind of legislative action needed to increase immigration, drive people into the labor force or grow investment in workforce training. It is not easy to find this in today’s political environment.
The Fed is Strongly Tight on Hiring, Jobs are Low, and the Job Market Is Tighter than It Used to Be
“Inflation expectations themselves play into mortgage rates and it impacts the monetary policy,” said Tucker. “The Fed wants to wait and see inflation coming down before they take their foot off the brake on raising rates. Some people expect another step down in the pace of tightening.
Pollak said that the reopening of schools could have been a great opportunity for people who had left the labor force during the Pandemic to start over. Some people who left may not come back.
The unemployment rate in September fell back to where it was 50 years ago, as the number of people looking for work fell.
The Federal Reserve will raise interest rates again on Wednesday. The last four hikes increased the investors’ optimism that this hike will be less than they had thought.
According to Fed funds futures, investors are expecting just a quarter-point rate increase at the next Fed meeting on February 1.
The US labor market is historically tight, with the unemployment rate, as of November, at just 3.7% and about 1.7 available jobs for every job seeker. It will be the second- best year on record for job growth if job numbers come in on Friday.
However, that pace is unsustainable, said Dean Baker, senior economist at the Center for Economic and Policy Research. If monthly job gains are in the 200,000s or more, that would be better for the Fed.
The Recovery of Laurel Street and the Impact of the Recovery from the First World Bank Central Bank Rate Hijacking on Job Creation and Workplace Employment
The pandemic forced restaurants to incorporate online ordering, pick-up and delivery on a greater scale, and customers became more comfortable in using those services, he said. Hotels haven’t bounced back fully, but neither has business travel, he said, adding that the rise of Zoom and competitors like Airbnb could continue to result in more muted demand for hotel stays.
The recovery remains uneven, and it’s growing more complex as the labor market starts to feel the influence of the Fed’s series of supersized rate hikes, Pollak said.
From August to September, local public education jobs fell by 22,000; day care services employment fell by 2,000 jobs; and truck transportation fell by 11,000 jobs, according to BLS data. The declines are moving in the opposite direction at a critical time.
There are many issues in the supply chain, and it’s important for people to have reliable education and child care services so they can return to the workforce. “That can certainly impact [parents’] long-term and future economic and work prospects.”
“We’re not sensing that a recession is imminent,” said Dionne Nelson, Laurel Street’s chief executive officer and founder. We are still very busy. We are still hiring. There are still markets that are active.
The Precession of the Labor Market, a Commentary on Carl Tannenbaum and the U.S. Job Market After the Decline
After fresh data about the health of the labor market caused investors to lose confidence, the Federal Reserve was expected to increase interest rates next month, raising costs for companies and weighing on stock prices.
The S&P 500 fell nearly 3 percent on Friday, dragged down by interest rate-sensitive sectors like technology stocks. Government bond yields, indicative of the future path of interest rates, rose and the dollar strengthened.
The labor market is currently holding up better than most investors would have you believe, meaning the Fed will need to raise interest rates more than it already has. Higher rates, in turn, raise costs for companies, weighing on stock prices.
Job growth remained strong in October even though policymakers tried to curb inflation by raising interest rates.
Carl Tannenbaum of Northern Trust said that if he woke up from a nap, he would conclude that the job market was still one of the strongest he had ever seen.
The United States’ economy was left with a lasting mark by the Pandemic. There are more warehouse workers today than there were in February 2020. Some parents must work as part-time or not at all in order to provide adequate child care because of a shortage. “Long Covid” is also clearly keeping some people out of work, although researchers have come up with different estimates of how many.
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up at this location. You can listen to an audio version of the newsletter by clicking the same link.
Wall Street and Wall Street Implications of the Decline of the Fed Funds Rates: A Memorino of Wall Street When Fed Policy Made Sense
Alan Blinder, former vice chair of the Fed and an economist at Princeton University, said these markets are caused by investors overreacting to data in anticipation of a Fed interest rate decision.
The fed funds rate will be raised again in early 2023 by the Federal Open Market Committee if the job market is cooling and wage growth and services inflation are slowing.
But Wall Street’s memory is short: Less than two weeks ago Fed Chair Jerome Powell unambiguously said rates would remain 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.
“Inflation has probably peaked but it may not come down as quickly as people want it to,” said Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research.
Recession predictions are a dime a dozen these days, but some are more serious than others. The most recent survey by the National Association for Business Economics indicates that nearly two-thirds of corporate economists believe the United States is already in a recession.
The Bank of England’s moves send more signals to investors that the central bank is prepared to do whatever it takes to restore more normal trading conditions to the bond market, which is necessary to keep down borrowing costs for UK households and businesses.
It confirmed that the bond-buying program would end Friday, but said it would extend extra support “beyond the end of this week” to banks still reeling from the fallout of a meltdown in some pension funds.
Resilience of the UK and other financial institutions to financial crises: A Nobel committee report on the 2051 UK sale of index-linked gilts
The UK government sold index-linked gilts in 2051 for a yield of 1.55%. That is the highest yield since October 2008.
The long-term yield on the US Treasury fell back down to about 3.5% after jumping above 4.3% in late October. The 10 years has been at its highest since 2008.
The central bank said that it had to act to stop a self-reinforcing spiral after the market experienced historic selling in the wake of the budget plans revealed.
The Bank of England stressed on Monday that funds have made “substantial progress” over the past week, but that it would continue to work with them to ensure the “industry operates on a more resilient basis in future.”
Bernanke, alongside two other academics, won the prize for research that showed how bank failures worsen financial meltdowns and how the system can be made safer.
The collapse of Lehman Brothers in the 2008 financial crisis, as well as big banks that were taken to the brink of failure, were a result of Bernanke’s leadership at the Fed. Those banks were partially saved by an emergency government bailout.
In 2009, the Federal Reserve tested major US banks on their resilience to a severe recession and upheaval in financial markets. The tests are used to determine whether banks can increase dividends or repurchase shares.
The research is relevant as markets are experiencing turmoil due to the rapid interest rate hikes.
The research papers, said the Nobel Committee, “offer important insights into the beneficial role that banks play in the economy, but also into how their vulnerabilities can lead to devastating financial crises.”
Many banks have earnings reports like Morgan Stanley, Citigroup and Wells Fargo.
Wall Street Perspectives of the Fed: Loan Growth, Capital Adequacy, and the Economic Outlook: Three Important Factors That Wall Street Think about
But investors are prone to get their hopes up about a central bank pivot only to have another piece of negative data or messaging from the Fed derail them.
Growth of Individual loans will likely decline, showing that Americans are beginning to feel the pinch of rising interest rates. Mortgage rates are now two times the level they were a year ago, and mortgage applications recently fell to a 25-year low.
Beyond disappointing headline figures, Wall Street analysts are focusing on three important factors: loan growth, capital adequacy, and the economic outlook.
Loan growth: The rate at which businesses borrow money from big banks doesn’t just tell us about the health of a financial institution itself. It also tells us a lot about whether businesses plan to expand over the next few months or if they’re preparing for a slowdown.
Analysts expect that loan growth stayed strong during the third quarter. CFRA’s research director wrote in a note that credit risk and loan loss exposure will not be at the center of Q3 results.
Capital adequacy: Expect banks to take questions about how much money they have on hand. Recent upheaval in UK bond markets and negative headlines about Credit Suisse have caused concern about a “contagion” effect in the United States.
The other issue, wrote UBS analysts in a note, “is that while banks have sufficient capital and deposit flows to support loan growth, it is less robust than it has been in recent years, and we expect banks to be less well positioned to return capital to shareholders through buybacks.” Stock valuations may be affected by that.
Jamie Dimon has a knack for making markets move when he predicts an economic downturn. The stock market plunged after he said the US could be in a recession in six months. Expect to hear warnings from CEOs and commentary on the future outlook.
Federal Reserve officials expressed concerns that inflation showed little sign of abating in the minutes from the central bank’s September meeting, released Wednesday. They made the same commitment to raising interest rates.
The Labor Department said the producer price index rose 8.5% in September, down from the previous month’s jump of 8.7%. But the report showed prices rose 0.4% month-over-month.
Economists surveyed by Refinitiv had been expecting the 12-month rise in wholesale prices to slow to an 8.4% increase, and the month-to-month increase to come in at 0.2%, compared to the 0.1% decline in August.
“Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes read. Several participants stressed the importance of maintaining a restrictive stance for a long time.
Wall Street Sentiment: Where are All the Officials? A Wall Street Perspective on the Inflationary Times of the 20th Century
An investigation by the Wall Street Journal found that many government workers own or trade stocks that are affected by decisions made by their agencies.
Don Fox is an ethics lawyer and former general counsel for the U.S. agency, and he states that agency officials hold immense power over things that affect the day-to-day lives of everyday Americans. These trades present a clear conflict of interest and violate the spirit of the law, he told the Journal.
This report shows that there is a need for more disclosure in the government. There are no federal regulations, laws or rules that prohibit Members of Congress and House employees from holding assets that might conflict with or influence their official duties.
“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 Biden administration is working to address rising prices with its Inflation Reduction Act, he added.
Markets plunged on Thursday morning after red-hot inflation data raised fears on Wall Street that the Federal Reserve would continue hiking interest rates aggressively. There was something strange happening.
The best day since 2020 for the stock market came on Thursday after a key inflation indicator came in softer than expected. The investors broke out their party hats as they assumed the report meant that peak inflation was behind us. That means the Federal Reserve could be less aggressive with its rate hikes.
The Great Big Picture: The End of the Financial Crisis and the Outlook for Real-Employment Recovery in the 2022-2022 Period
The big picture shows that household wealth is on track for its first significant reduction since the financial crisis in 2008.
Global assets will decline by 2% in 2022, according to the report. Households will lose about a tenth of their wealth this year.
The report paints a negative picture. The current outlook shows stagnant growth even though the financial crisis was relatively quick. Financial assets are expected to grow at an average of nearly 4.6% per year until then, compared to the last three years.
You can’t beat the Fed, that’s what 2022. So expect more good-is-bad economic news, since a strong monthly jobs report will likely continue to correlate to a weak market.
Household debt, meanwhile, has been on the rise globally. “The context of rising interest rates and the higher cost of living could pose a risk to household balance sheets,” reported researchers.
These changes will take years to recover from, according to the insurer. Today marks the release of US retail sales for September, and as such will likely shed some light on the state of the consumer, as well as earnings reports from some of the country’s largest banks.
The 30-year Fixed-Rate Mortgage Rate Expansion in the U.S. and the Costs of Homebuying: The Case of Freddie Mac
The 30-year fixed-rate mortgage averaged 6.48% in the week ending January 5, up from 6.42% the week before, according to Freddie Mac. The 30-year fixed rate was 3.41% a year ago.
As well as putting off new buyers, the sharp increase in rates has shocked existing homeowners accustomed to more than a decade of ultra-low borrowing costs.
“We continue to see a tale of two economies in the data,” said Sam Khater, Freddie Mac’s chief economist. Weak housing demand is a result of inflation, recession fears and the lack of affordability as well as strong job and wage growth.
Doing the math: A year ago, a buyer who put 20% down on a $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average interest rate of 3.05% had a monthly mortgage payment of $1,324, according to calculations from Freddie Mac.
Tucker said that there is not a lot of homes for sale in the market. The main thing buffering us from price declines is that.
The new option will include much of what is now available with the Basic plan but will only have an average of four to five minutes of commercials per hour. Those ads will be 15 or 30 seconds in length and will play before and during TV series and movies.
Where Have All the Houses Gone? Why Wall Street, Wall Street and the epoch of financial crisis are facing multi-month highs
Following that news, the stock tumbled, and the company lost billions in market cap. Hundreds of employees were laid off, and doubts about the platform’s future, raised doubts about the viability of the entire streaming marketplace.
Fortunately, demand and supply fundamentals could limit the downside for US home prices. Millennials, the largest generational cohort since the baby boomers, have gotten older and are looking to buy their first homes. Unfortunately, there isn’t enough to go around. Even though they are starting to fall and will continue to do so, high prices will likely be sticky. Demand from Baby Boomer generations will probably keep prices from falling as they did in 2008. It’s highly unlikely this decline would spark another financial crisis.
Who’s to blame? An increasingly popular answer among Democrats, and even some Republicans, is Wall Street. Earlier this year, Senator Elizabeth Warren accused private equity firms of “taking advantage of the housing shortage by purchasing large numbers of houses and raising rents for families.” The House Financial Services Committee held a meeting in June called Where Have All the Houses Gone? Private Equity, Single Family Rentals and America’s Neighborhoods.”
That is a bad sign for the economy. Just last month Bank of America CEO Brian Moynihan told CNN that the continued strength of the US consumer is nearly single-handedly staving off recession. Consumer spending is a major driver of the economy, and the last two months of the year can account for about 20% of total retail sales — even more for some retailers, according to National Retail Federation data.
So what gives? A decade of free-flowing money from the Federal Reserve to banks has created two economies, argues Nomi Prins, a former managing director at Goldman Sachs and author of “Permanent Distortion: How the Financial Markets Abandoned the Real Economy Forever.” Money flowed into businesses and stocks high while Main Street suffered from decelerating wages and little support as a result of years of low rates. We are now dealing with a distortion where market behavior and prosperity have nothing to do with each other.
But markets, which have taken quite a beating this year, are at multi-month highs again. In a recent interview, Prins told me that it was pointless to try to apply economic rationale to stock markets.
Another mandate: The Federal Reserve is mandated to keep unemployment and prices in check, but the third unofficial mandate of the Fed is to boost markets, said Prins. “We’ve seen that over the last 14 years,” she added. Interest rates for overnight bank borrowing in the United States were lowered to zero in 2008, when the Fed decided to flood the financial system with money by purchasing Treasury securities. That created a pervasive idea in the finance world that the stock market would go up no matter what, she explained.
The world was created when the majority of theStimulus flowed upwards into markets and not into the economy at large, creating a dependence for investors on the Fed.
PreMarket Stocks Trading in the Precessionary Era: Challenges of Truss, Sunak, and the Inflationary Landscape
“Like an athlete running in a marathon, the Federal Reserve’s attempt to bring inflation down toward its 2% target requires some patience, but importantly, moving forward matters even if it’s early on in the race,” said Rick Rieder, BlackRock’s chief investment officer of Global Fixed Income.
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 caused companies to hike prices more than before, but according to a recent survey, prices are starting to come down. A total of 9% of respondents indicated prices were falling, the largest share reported since January 2021.
Businesses are being hampered by the lack of raw materials and labor, according to the survey. The share of respondents reporting shortages remained near record levels.
After a period of historic political and financial market chaos, Britain has a third prime minister in seven weeks. 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 cut taxes, but only once price pressures eased.
Yet the economic outlook has deteriorated sharply since then — not least because of the market turmoil unleashed by Truss’ now-abandoned plan to slash taxes as soon as possible and boost government borrowing.
Source: https://www.cnn.com/2022/10/25/investing/premarket-stocks-trading/index.html
The Covid-19 Economy: When Government and Individuals Find Their Way Towards Economic Recovery, and How Private Sector Investment Is Driven to Rejuvenate
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.
In an exclusive interview, Treasury Secretary Janet Yellen said she didn’t see signs of a recession in the near term as the US economy rebounded from six months of contraction.
While acknowledging the president’s assessment that the economy is strong, there is a contrast between how other economies around the world are doing.
Gross domestic product — the broadest measure of economic activity — rose by an annualized rate of 2.6% during the third quarter, according to initial estimates released Thursday by the Bureau of Economic Analysis. In the first quarter of the year, a decline of 1.6% was reported, and then in the second it was negative 0.6%.
Over the course of this year, Biden and his top economic officials tried to highlight a rapid economic recovery and major legislative victories while also promising to tackle soaring prices, as they try to juggle conflicting interests.
It isn’t a reality that has made it difficult for the administration to take advantage of what they see as a strong record. Biden, asked about the economy last week, told reporters it’s “strong as hell,” drawing criticism from Republicans.
The credit the US economy is getting hasn’t gotten the officials believe is merited.
A number of American families would have faced difficulties if we hadn’t avoided them. “These are problems we don’t have, because of what the Biden administration has done. So, often one doesn’t get credit for problems that don’t exist.”
Yellen traveled to Cleveland as part of an administration push to highlight the major legislative wins – and the tens of billions of dollars in private sector investment those policies have driven toward manufacturing around the country.
It is a critical piece of an economic strategy designed to address many of the flaws and weaknesses laid out in Covid-19, with significant federal investments in infrastructure and creation of new pieces of supply chains.
As she acknowledged that they would take some time to fully take effect, she listed a series of major private sector investments, including the Intel plant which was opened a few hours drive outside of Columbus.
Repairs to the bridges are starting to come online, but not in every community. Many bridges will be fixed, and roads will be upgraded in many communities. Money flowing into research and development is very important for the long term strength of the American economy. And America’s strength is going to increase and we’re going to become a more competitive economy,” she said.
The Fed Chairman’s Correspondence: What Do We Need to Know Before Asking for Its Definite Implications?
The battle lines that have been drawn this week over raising the debt ceiling and a crisis of confidence in Washington making that House Republicans will again use for leverage should they take the majority, were addressed by the head of the Fed.
“The President and I agree that America should not be held hostage by members of Congress who think it’s alright to compromise the credit rating of the United States and to threaten default on US Treasuries, which are the bedrock of global financial markets,” Yellen said.
As the administration moves toward a time period that traditionally leads top officials to leave an administration, she made clear she did not plan to be one of them. Asked about reports she had informed the White House she wanted to stay into next year, Yellen said it was “an accurate read.”
There’s a program we talked about that I’m excited about. I see in it that it will strengthen the economy and strengthen American households. And I want to be part of that.”
The Federal Reserve is expected to order another big boost in interest rates Wednesday, as questions bubble up about how much higher borrowing costs will have to go before stubborn inflation starts to come down.
“Interest rates have risen at an unnerving speed, and we’re not done yet,” said Greg McBride, chief financial analyst. It will take some time for inflation to come down from these lofty levels, even once we see some improvement.”
“Because there is a bit of a savings buffer still sitting for households, we may be able to continue to spend in a way that keeps demand strong.” said Esther George, president of the Federal Reserve Bank of Kansas City. “That suggests we may have to keep at this for a while.”
Like her colleagues on the Fed’s rate-setting committee, George has expressed a determination to control inflation. She’s cautioned against raising rates too quickly in a time of economic uncertainty.
“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. It’s my fear that a succession of super-sized rate hikes might cause you to oversteer and not be able to see the turning points.
What do job openings tell us about the economy? The case for a Kansas City home seller before the Fed raised rates to 7% within six months
Shawn Woods of Kansas City said his company has gone from selling a dozen houses a month before the Fed started raising rates to less than five.
“Never in my wildest dreams would I have thought we’d go from 3% [mortgage rates] to 7% within six months,” said Woods, president of Ashlar Homes and the Home Builders Association of Kansas City.
It is simple why Powell pays attention to job openings. Since employers don’t usually attempt to hire when no one is buying their products, they are a direct measure of demand. And they have a clear connection to wage growth — and therefore inflation — because when lots of companies are hiring, they have to pay more to compete for workers.
Economists believe quitting is a sign of confidence in the economy, since people don’t change jobs if they are worried about the economy. job-switching contributes to wage growth because people don’t jump employers without a boost in pay. Data released yesterday from ADP, the payroll-processing giant, showed that people who switched jobs in October saw their pay rise roughly twice as quickly as people who stayed put.
The story about the housing market ten years ago was that Millennials 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 investment portfolios were happy to pass on stock gains to their children because of the stock surge.
Are Buyers Really That Lucky? Rethinking the American Dream with Boomers: The Impact of Mortgage Rates and Inventory Constraints on First-Time Buyers
As that 2020 housing boom begins to go bust, those who managed to close on a home in the crush of competition fed by rock-bottom mortgage rates should count themselves 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. “And this year were facing increasing home prices while mortgage rates are also climbing.”
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.” That’s putting more people and homes in environmentally vulnerable areas, such as wildfire-prone regions of the West.
As affordability reaches crisis levels, now is a good time for federal and local governments to rethink the way 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. As Schuetz argues, the upper-middle class Boomers in power now are, understandably, reluctant to change the system that got them where they are.
Every penny counts: The first mile in a marathon, and the future of the labor market and the stock market: The same results from the central bank and the Fed
The Bank of England raised its key interest rate by the same amount as the Fed, marking their largest hike in 33 years. The European Central Bank did the same thing last week.
Basis points are the way central bankers talk about rate moves. One basis point is less than a percentage point.
Good news: The first mile in a marathon is very important. The economy could be on the verge of a soft landing, whereby inflation does not get too high without a recession. It is also good for markets.
Bill Adams wrote in a note that if the Fed doesn’t tighten as aggressively, the economy will weaken less and the stock market will be less bad.
Daniel Zhao said that the economy has moved from white hot to red hot. The labor market is still very hot but it has cooled down.
The report offered a final glimpse of the economy before the midterm elections next week, and it will almost certainly make its way into both parties’ closing pitches to voters.
“Today’s stronger than expected report illustrates the difficult task that still lies ahead for the Fed wrestling a resilient labor market and sticky inflation,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley Global Investment Office. “While the number may be disappointing for investors hoping for a dovish Fed sooner rather than later, keep in mind it was the lowest reading in nearly two years.”
The unemployment rate in the United States ticked upwards in October to 3.7%. In the United Kingdom, job vacancies have fallen to the lowest level in a year. The UK Office for Budget Responsibility believes that unemployment will rise by 505,000 by the end of the third quarter of 2024, reaching 1.7 million.
Wall Street, Goldman Sachs, and Wall Street Worry about the Inflationary Continuum of the Second Quarter: Predictions for the Next 12 Months
Fed chair Jerome Powell hinted that a further slowdown in Fed tightening could be in the cards. The fourth quarter saw a bit of a recovery due to the hope that inflation pressures are easing.
Wall Street is cautiously optimistic despite warnings from business leaders and some economic models that a recession is imminent.
Goldman Sachs Chief Economist Jan Hatzius said in a report that there was a chance of a four-step path from high-inflation economy to low-inflation economy of the future.
By contrast, a Bloomberg Economics model released in late October determined the risk of a recession over the next 12 months stands at a staggering 100%. A probability model run by Ned Davis Research similarly found a 98.1% chance of a global recession.
But Goldman Sachs pointed out the transition to more sustainable — but still positive — economic growth “has already occurred, and it looks durable.” The bank expects GDP to increase by 1% over the next year.
Goldman Sachs concedes that there has been “much less progress” on the price side. Inflation metrics haven’t really gotten any better but they have been mostly static.
In November prices of the digital currency fell by more than 15%. The collapse of FTX, which had a high value of $32 billion, has investors thinking about what the future will bring.
Those assets have lost value because they’re like stocks and bonds in that they worry about rate hikes and recession.
Digital Coinflation, the Covid Era, and the Homebuying Crisis: How Mortgages Have Been Built Since the Great Recession
Near-zero interest rates, a large influx of investors and the Covid-era were just some of the factors that led to a surge in issuance of the digital currency. It reached a record high of nearly $70,000 in November.
Then, central banks started raising rates to fight inflation, and the dollar strengthened significantly, seducing investors as the ultimate safe haven. The economy and the new investors that still viewed the asset as a riskier investment left in droves.
“Bitcoin and ethereum went straight up and down but they have still gained a lot from mid-2020. 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.
Would-be buyers have no desire to go into the market now. Since there are few homes that can be bought, most sellers aren’t interested in getting ultra low mortgage rates.
Additionally, years of rampant demand spurred builders to overbuild in the early 2000s, flooding the country with a home surplus. As a result, following the Great Recession, it took years for demand to work through the vast housing stock that had been amassed. This, in turn, crushed the homebuilding industry, causing chronic underbuilding over the subsequent years.
New regulations were put in place following the 2008 financial crisis. Banks are required to be better capitalized, lending standards are much more stringent, and most mortgage are fixed-rate. This all buttresses the financial system from another housing downturn.
There has been a spike in refinancing activity over the last couple of years because of low interest rates. This pushed down monthly payments for many homeowners, making servicing their mortgages easier.
Americans have more equity in their homes than they did in the last financial crisis. Indeed, loan-to-value ratios, which measure the amount of a mortgage relative to the value of a home, for US mortgages have fallen to just 42% – a 12-year low. This creates more of a “cushion” for prices to decline before home values fall below the loans that underpin them. Thus, if a home is sold at a loss, it’ll likely hit homeowners before it hits the banks.
Houses were “flying out the door,” said Grant Sykes, a manager at real estate agency Barfoot & Thompson. He told CNN Business that there were instances when agents were gobsmacked by the prices being achieved.
One example is an example in which a property sold for $1 million New Zealand dollars (610,000) above the asking price in an auction that lasted eight minutes. (Most homes in New Zealand are sold at auction.)
The sales drew a lot of buyers who drove the prices up. Since then, Barfoot & Thompson’s clearance rate at auction has plummeted, according to Sykes, prolonging sales times and sending prices lower.
The pandemic boom, which sent prices into the stratosphere, is running out of steam and house prices now are falling from Canada to China, setting the stage for the broadest housing market slowdown since the global financial crisis.
Rising interest rates are driving the dramatic change. Central banks on a warpath against inflation have taken rates to levels not seen for more than a decade, with ripple effects on the cost of borrowing.
Modeling of past house price crashes by Oxford Economics shows that employment is the decisive factor in determining the severity of a downturn, because a spike in joblessness raises the number of forced sellers.
“In an ideal world, you’ll get a bit of froth blown off the top [of house prices] and everything is fine. It is not impossible, but it is more likely that the housing downturns have more serious consequences.
“Data lags probably mean that most markets are now seeing falling prices,” said Slater. The only question is how steep it is and how long it will last.
Prices for new homes in China fell at the fastest pace in over seven years in October, according to official figures, reflecting a deepening property market slump that has gripped the country for months and is weighing heavily on its economy. According to China Index Academy, home sales have fallen 43% this year.
Mortgage rates in 25 major cities around the world tracked by UBS have almost doubled on average since last year, making house purchases much less affordable.
According to the index, a skilled service sector worker can only afford a third of the housing space they used to.
In countries with a larger share of variable rate mortgages, such as Sweden and Australia, the shock will be immediate and could increase the risk of forced sales that drive prices down faster.
But even in places where a large proportion of mortgages are fixed, such as New Zealand and the United Kingdom, the average maturity of these mortgages is quite short.
Inflation, Employment, and the Global Housing Market: Predictions for the next few years, and Implications for Central Bank Policy
It’s likely that more debt will be subject to higher rates in the next year or two than was initially thought, according to a report last month.
The International Labour Organization estimates that after recovering strongly in the first half of the year, the number of hours worked was 2.5% below its previous peak in the third quarter.
“The outlook for global labour markets has worsened in recent months and on current trends job vacancies will decline and global employment growth will deteriorate significantly in the final quarter of 2022,” the ILO said in an October report.
There is no chance of a repeat of the 2008 housing market crash. Housing supply is tight in some countries, but banks and households are in better shape.
In a worst-case scenario, where house prices fall more sharply than anticipated and there’s a slump in residential investment, Oxford Economics expects global GDP to grow by just 1% in three years, rather than the 1.5% it currently expects.
The Chinese housing market is in a downturn, which is an additional negative factor compared to the global financial crisis. “So rather than offsetting the impact on world output of a global housing downturn, as was the case after the GFC, the Chinese housing sector is contributing to the slump.”
A half-point increase is what traders are betting on. Federal funds futures on the Chicago Mercantile Exchange show an 80% probability of a half-point hike.
The hope is that inflation pressures are finally starting to abate enough that the Fed can pivot — Fed-speak for a series of smaller rate hikes -— to avoid crashing the economy into a recession.
The Fed factor: November’s report could indicate that consumers are feeling the double-punch of sky-high inflation and painful interest rate hikes from the central bank. This retail sales data adds to concerns that consumers may be becoming less cautious with their spending.
Jones still thinks the Fed will raise rates by only half a point this week and may look to hike them just a quarter point in early 2023. She said that the Fed is now making it up as they go along.
The major concern is that the Fed and other central banks may not begin to pause, let alone consider lowering interest rates to try and stimulate the economy, until it’s too late.
Then there’s the anticipated central bank meeting. The Federal Reserve has a policy committee meeting on wednesday and it is sandwiched betweenCPI and retail sales.
A pivot or pause isn’t a cure-all for the market according to the co- chief investment officer at Truist Advisory Services. It seems like the rate cuts may be too late. The risks of a recession are still high.
The Fed Meeting Summary: Inflation, Personal Income, Consumer Spending, and Orders in the U.S. Retail and Real Estate Markets
It might be possible that consumers are getting a head start on shopping. Inflation has an effect on the numbers too, since retail sales have been impacted (positively) by the fact that people have to spend more money for stuff.
“Everybody has been talking about inflation this year. The CEO of Comgest Global Investors said that disinflation would be more about in 2023 or 2024.
What does that mean for the investor? Cosserat said people should be looking for quality consumer companies that still have pricing power and can maintain their profit margins. He said that the firm he runs owns two stocks that fit that bill, and he named L’Oréal and HESAF.
Friday: Personal income and spending, PCE inflation, new home sales, and US durable goods orders.
In the minutes from the December Fed meeting, central bank officials spelled it out for interested parties: No policy makers anticipated that rate cuts would be appropriate in 2023. The minutes warned that easing of financial conditions would complicate the Committee’s effort to restore price stability.
There was a hope that the Fed would begin to scale back on its rate hikes in October and November. They are still down for the year, but the stock market has been more volatile in December.
“The macroeconomic focus will shift from fears of Fed tightening to how badly growth slows and earnings fall before global central banks can hint at providing accommodation,” said Tom Essaye, founder and editor of the Sevens Report investing newsletter, on Monday.
Mortgage Rates and Construction Activity in the U.S. After Fed Expansion and First Year Low-Tc Mortgage Annihilation
Sam Bankman-Fried, founder of FTX, is expected to give some answers to the House Financial Services Committee on Tuesday. Bankman-Fried isn’t on the list of witnesses for the Senate Banking Committee’s FTX hearing.
The Fed announcement could lead to investors taking a deep breath before the press conference later that day. Although there is no guarantee of that.
The Bureau of Labor Statistics revealed on Tuesday that the Consumer Price Index cooled considerably in November, and was at its lowest level in nearly a year.
Freddie Mac gets mortgage applications from thousands of banks and credit unions across the country. The survey only includes borrowers who put 20% down. People who put down less money upfront will pay more than the average rate.
The yield on the 10-year US Treasury bonds is used as a proxy for mortgage rates. When that rate goes up, the 30-year fixed-rate Mortgage goes up as well. When the Treasury rate goes down, so do mortgage rates.
Ratiu said that the cooling of inflation measures should help ease the upward pressure on mortgage rates.
After the 30-year fixed mortgage rate eclipsed 7% in late 2022, Yun said he expects that to settle at 5.7%, as the Fed slows the pace of rate hikes in response to slowing inflation.
The Mortgage Bankers Association said that mortgage applications rose last week, as buyers looked to take advantage of slightly lower rates.
“Overall, applications increased, driven by increases in purchase and refinance activity,” said Joel Kan, MBA’s vice president and deputy chief economist. “However, with rates more than three percentage points higher than a year ago, both purchase and refinance applications are still well behind last year’s pace.”
The Consumer Puzzle of the Season: The Weak Retail Sales Data and the Implications for the Recovery of the Economy from the First Bank Holiday Season
Weaker-than-expected retail sales in November pummeled market sentiment on Thursday and raised the odds that the Federal Reserve’s inflation-fighting interest rate hikes would push the economy into recession.
The weak report means that retailers will have a hard time getting rid of excess inventory during the holiday season since spending slowed just as the season started. They were not happy about that.
Target fell by 3.2% and Macy’s dropped by 3.5% while shares of Costco were down 4.1%.
The entire retail sector fell as the top three holdings Amazon, Home Depot and Walmart fell in value. All of the retail stocks within the S&P are down.
Morgan Stanley economist Ellen Zentner wrote in a note that the past year is catching up to consumers and forcing them to be more conservative in their holiday shopping this winter.
American bank accounts are still robust, but beginning to dwindle. The credit card balances increased over the course of the year. That’s the largest annual jump since the New York Fed began keeping track of the data in 2004.
She said that the outlook for the economy was still relatively weak. The sustenance of robust consumer spending depends upon continued strength in the incomes and labor markets in the quarters ahead.
Chinese companies have been audited by Wall Street regulators for twenty four years: From the Wall Street to the Stock Exchanges, Home Prices, Mortgage Rates, and Mortgage Applications
American regulators have been granted unprecedented access to the full audits of Chinese companies like Alibaba
(BABA) and JD.com
(JD) after threatening to kick the tech giants off US stock exchanges if they did not receive the data.
A major breakthrough has been made in a years long battle over the regulation of Chinese companies on Wall Street. It will come as a huge relief for these firms and investors who have invested billions of dollars in them, reports my colleague Laura He.
“For the first time in history, we are able to perform full and thorough inspections and investigations to root out potential problems and hold firms accountable to fix them,” Erica Williams, chair of the Public Company Accounting Oversight Board, said in a statement Thursday, adding that such access was “historic and unprecedented.”
If more than 100 Chinese companies did not hand over the audits of their financial statements, they would be removed from the stock market in twenty four years.
There are more than 260 Chinese companies listed on US stock exchanges, with a combined market capitalization of more than $770 billion, according to recent calculations posted by the US-China Economic and Security Review Commission.
A long list of housing data is on tap. On Tuesday, the Census Bureau will report housing starts and building permits for November, as well as new home sales data for the same month. The data on mortgage rates and applications will be reported on Thursday while the existing home sales number from the National Association of Retailers will be on Wednesday.
There are some signs that the worst could be over soon. After reporting earnings last week, shares of Lennar rallied. The company expected to deliver more homes next year than analysts had anticipated, but revenue topped forecasts and the guidance was higher than they had estimated.
According to CFRA Research analyst Kenneth Leon, investors may be interested in crossing the valley from recession to potential recovery in the next few years.
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.
Others point out that even though housing sales may remain weak due to high home prices and still elevated mortgage rates, the good news is that most existing homeowners are still paying their monthly mortgage on time.
The difference is stark when you consider how many people with poor credit histories were unable to stay on top of their mortgage payments in 2008.
General Mills Earns: Why the Fed is Hitting a High Unemployment Recession Thing? An Investor’s Perspective with Dreyfus
Cereal giant General Mills
(GIS) will release earnings on Tuesday. Analysts are expecting a slight increase in both sales and profit. Consumers may be growing increasingly wary about inflation and the broader economy, but they’re still eating their Wheaties. General Mills has doubled in value 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.
The investors are going to be very attentive to what the companies say in their earnings reports. There is a expectation for earnings growth of 5.3% for the next five years. If companies start to cut their own forecasts due to worries about the economy, that could be too optimistic.
In a recent interview, the chief economist and strategist at Dreyfus said that there was a high chance of a recession. “That will have a knock-on effect for corporate earnings. Higher rates and weaker earnings suggest more pain for stocks.”
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.
If employment does not go up in the first half of next year there is a chance the Fed could pivot and help bring about an improvement in the economy.
Powell was optimistic on Wednesday that a soft landing was still possible, given that the labor market was currently tight enough to absorb an increase in unemployment without sparking a recession. The investors will be watching the jobs numbers very closely.
The Rise of a House of Cards: Bankman-Fried Charged with Eight Counts of Fraud and Propagation on a Foundation of Deception
Bankman-Fried will be in court, it’s not clear when. If he sucks it up, he’ll return to the US quickly. He will be in a US court for an arraignment and bail hearing.
Last Tuesday, federal prosecutors from the Southern District of New York charged Bankman-Fried with eight counts of fraud and conspiracy. If he is found guilty on all counts, he could face between 120 and 115 years in prison, though he might not get the maximum sentence.
The market regulators filed civil lawsuits against the Bankman-Fried, saying he built a house of cards on a foundation of deception and lied to investors.
The Saturday before Christmas — also known as Super Saturday — is typically the busiest shopping day of the November-December gift-buying period. Super Saturday is on December 17th when Christmas Day is falling on a Sunday and Christmas Eve is on a Saturday. Consumers are estimated to shop on that day by the National Retail Federation.
The NRF estimated that shoppers have made half of their gift purchases. With less than a week to go until Christmas, there is a lot of shopping to be done.
Source: https://www.cnn.com/2022/12/19/investing/premarket-stocks-trading/index.html
The Clock is Still Tackling: How Retailers are Nervous to Shop Through the Season? A Case Study of America’s First Fashion Revolution
It’s also costly for retailers to sit on an oversupply of merchandise for too long. 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 more space is required for a long time, the cost goes up.
Also, unsold products lose value over time. If the current fashion trends have passed, savvy shoppers won’t buy last year’s style. The stores are forced to reduce prices, which lowers 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.
Ross Steinman, a professor of consumer behavior at Widener University in Chester, Pennsylvania, has studied the holiday season for 20 years.
“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.”
America’s economy grew much faster than first thought, a sign that the Fed’s battle to cool the economy to fight inflation is having a limited impact.
Consumer Confidence and Unemployment Insurance Rates in the United States Declined by a Stronger-than-expected 2023 GDP
The stronger-than- expected reading is due to increases in exports and consumer spending that are partly offset by a decrease in spending on new housing said the report. Almost two-thirds of the nation’s economic activity is caused by consumer spending.
US stocks tumbled Thursday on fears that the stronger-than-expected GDP could prompt the Fed to continue to raise rates more than expected in 2023. The day went down for the stock market, with the S&P 500 falling, but at the same time the index lost 347 points, or 1%).
As traders and investors are on vacation and each new data gets overweighted in both directions, there is part of the wide swings we are seeing.
A recent survey of chief financial officers found the current level of interest rates have not impacted their spending plans. According to a survey by the Conference Board, consumer confidence increased in December and reached 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.
Initial weekly claims for unemployment insurance benefits ticked up to 216,000 for the week ended, December 17. The previous week’s total was revised upward.
The number of continuing claims fell slightly to 1.672 million for the week ended December 10. The prior week’s number of continuing claims were revised up to 1.678 million.
The Decreasing GDP and Manufacturing Activity in the Fourth Quarter of the Second Half of the 2022 Quadrupole Phase of the Fed’s First Year
The final GDP report is one of most backward-looking readings the government releases, looking at the state of the economy nearly three months ago. In the next few months, growth will be only 2.4% and it will be significantly slower than Thursday’s reading.
Friday’s report also showed that spending continued to rise in November, but at a much slower pace than in previous months. Spending was up 0.1% in November as compared to 0.8% the month before. Personal income went up in November, but not as much as in October.
However, inflation within the services sector has been a little “sticky,” and not abating as quickly. Faucher said that Friday’s PCE report showed the services index had a monthly increase of 0.4% and a year over year increase of more than 11%.
While the services inflation is due to housing costs which are rapidly reversing, the Fed is worried that wage growth will fuel persistent increases in services prices and overall inflation
The Commerce Department’s report showed that new orders for manufactured goods dropped in November by 2.1%, which was the biggest drop since the start of the Pandemic.
Transportation equipment, specifically new orders for non-defense aircraft and parts, drove the decline, according to the report. Excluding transportation, new orders increase 0.2%.
Diane Swonk, chief economist for KPMG, said that core durable goods orders slowed but did not contract after the report was released. The prelim reading for December shows that manufacturing activity has begun to contract and will contract further at the end of the year. The manufacturing sector is expected to experience a cold winter.
The recent easing of inflation was welcomed by consumers, according to the director of the Surveys of Consumers. “While sentiment appears to have turned a corner from its all-time low from June, consumers have reserved judgment about whether the trends will continue.”
The final reading for consumer sentiment in December came in at 59.7, slightly above the preliminary reading of 59.1, and higher than the final reading of 58.9 in November.
Earlier this week, the Conference Board’s consumer confidence index – another measure of how consumers are feeling about the economy – landed at its highest measurement since April 2022.
Ross Mayfield, an investment strategy analyst at Baird, said that it means the Fed could be on a path to tighten monetary policy in the beginning of next year.
However, a “structural labor shortage” remains a major headwind, Powell noted in December, attributing the lack of workers to early retirements, caregiving needs, Covid illnesses and deaths, and a plunge in net immigration.
Economic Projections for 2023: The End of the Great Recession for the United States, and Why the U.S. Economy Will Not Enter Its Dark Ages
“It’s been pretty impressive how well the consumer has held up over the past 18 months, and not pulling the rug out from under the consumer is pretty much how you get to the soft landing,” Mayfield said.
The central bank has an open market committee that holds eight regular meetings a year. On the first day of the meeting, the group looks through economic data, assess financial conditions and evaluate monetary policy actions, which will be announced to the public the following day via press conference led by Chair Powell.
Below are the meetings tentatively scheduled for 2023. Those with asterisks indicate the meeting with a Summary of Economic Projections, which includes the chart colloquially known as the “dot plot” that shows where each Fed member expects interest rates to land in the future.
It was a brutal period for the stock market, with roughly one-fifth of the value of the S&P 500 vanishing and the Nasdaq dropping by more than one-third. All three major US markets suffered their worst years — by far — since 2008.
Everyone is wondering whether or not the United States will enter a recession this year. The health of the economy will be determined by three big things: the strength of the labor market, the American consumer and the Federal Reserve.
Silicon Valley Inflation, Jobless Claims, and the Rate of Interest Rate Increases: Why We Are Facing a Post-Renal Recession?
After spiking above $5 a gallon for the first time ever in June, gas prices have plunged. The national average for regular gasoline has plummeted in recent weeks to a new 18-month low of $3.10 a gallon but has crept higher recently to more than $3 a gallon.
The trend has begun to reverse when measured on a monthly basis. Real wages have been growing faster than consumer prices, a significant shift that could give consumers firepower to keep spending next year.
The fear is that the Fed will eventually overdo it, raising rates so high and keeping them there for so long that it causes a recession — if the Fed hasn’t already done that.
A reduction in the size of interest rate increases by the Federal Reserve is one factor that traders believe will lead to a further deceleration in jobs growth.
Wednesday’s weaker than expected report on the health of the manufacturing sector, coupled with more signs of strength in the jobs market given the solid report about labor turnover, led to more market volatility.
The weekly jobless claims numbers come out Thursday morning and investors will want to know more about the private sector job market. Further strength could set off more alarm bells about inflation and Fed rate hikes.
“The persistent mismatch between labor supply and demand continues to put upward pressure on wages,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments, in a report.
The jobs report on Friday will likely be more focused on worker paychecks than the number of jobs added. Wall Street may do the same.
The jobs market is doing well. But you wouldn’t know that from what’s going on in Silicon Valley. The component of the software giant. Salesforce
(CRM) announced Wednesday it was laying off 10% of its workforce.
The hope was that consumers and businesses would spend more on tech products and services once the economy started to recover from a brief recession in 2020.
Now, though, recession alarm bells are sounding once more as inflation and rate hikes take their toll…and tech companies realize that they may have not factored that in to their budgeting plans.
“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing,” said Salesforce chair and co-CEO Marc Benioff in a recent note to employees.
There are different phases of companies that last a long time. Andy Jassy, CEO of Amazon, told his employees that they are not in heavy people expansion mode very often.
The Rise and Fall of the Global Economy: Real Estate Prices in the Light of a Strong December Mortgage Rate Decrepturn and an Energy Market Slowdown
The global economy is clearly not out of the woods. Many, including the head of the International Monetary Fund, are still concerned about a looming downturn that could hit China and emerging markets particularly hard.
According to CNN, investors are starting to believe that the pace of consumer price increases is starting to slow in France and Germany. A drop in energy prices is leading the pullback.
The British Retail Consortium said in a report that there was a spike in food prices in December. Meanwhile, data analytics firm Kantar noted in another report that UK grocery sales hit a record during the four weeks ending on December 25, even though the number of items that consumers bought fell 1% during the same period.
He said more inventory would be available from locked-in homeowners, who have been paying ultra-low mortgage rates for the past couple of years.
According to Lawrence Yun, chief economist of the NAR, half of the nation can expect a small price gain. The markets in California are more likely to see price drops of 10%- 15%.
As a result, the search for affordability is leading many would-be homebuyers toward lower-priced metro areas where the cost of a house can fit within more families’ budgets, said George Ratiu, manager of economic research at Realtor.com.
In places like Manchester, New Hampshire and Columbus, Ohio, there are still homes changing hands due to the fact that buyers from more expensive locations are still attracted by the local economies and median prices.
In November, as mortgage rates started a six-week tumble, the median monthly mortgage payment fell by 1.8% to $1,977 from $2,012 in October, according to the Mortgage Bankers Association.
An Outlook for the Real Estate Market Despite the 2022/23 Uncertainty: A Mirror Image for the 2023-23 Market?
In 2023, we may see a mirror image of 2022 — a somewhat trying first half that gives way to a surprisingly strong back half of the year for buyers, said Leonard Steinberg, corporate broker at Compass in New York.
The competing demands of first-time buyers and retirees mean that would-be buyers can’t stay away forever, especially given the fact that they stepped back from the market in late 2022.
Chronic under-building of new homes is also likely to remain a challenge across all market segments as builders grapple with the challenge of balancing a short-term decline in demand with the long-term need for more new housing, he added.
Buyers are likely to pay more during the spring selling season, when homes tend to sell for a seasonal premium because that’s when most buyers are trying to get it done.
Tucker stated that the spring market will be more competitive for buyers, while the next couple of months will be calm.
“The big surprise for a lot of people might be that the market has a really boring year,” said Tucker. “It would be a great change of pace. A boring and boring year in the housing market would make for a great surprise.
George Ratiu, manager of economic research for real estate website, said mortgage rates ended with no change as market responded to the economic uncertainty. He said that on one hand there are increasing expectations of a recession. The incoming economic data shows continued resilience.
The Labor Market at the End of the Year: Implications for the U.S. Labor Market and the Recovery from the Fed’s Great Recession
“With more than 10 million open jobs and still not enough applicants to fill them, the labor market would have to experience a sharp and significant drop to move the needle on spending,” he said. If corporate executives overreact to the recession chatter and cut payrolls, it will create a downward spiral.
Even as prices dropped 10% from the summer peak nationwide, home values were still up by double digits from last year in a number of the top 150 largest metropolitan areas.
As more inventory becomes available, and more buyers begin to look at what is out in the market, traditional seasonal norms will kick in in March, but buyers need to be willing to give up the current low rates that they enjoyed in the past.
The new year is a time where many feel renewed, motivated, and even optimistic about the year to come. During this time in January, there is a certain clarity.
Jobs has been the word of the week as investors eye a slew of data highlighting a strong labor market that is confoundingly resistant to the Fed’s attempts to cool the economy.
The second in command at the International Monetary Fund, Gita Gopinath, urged the Fed to continue with rate increases because of the labor market’s resilience in a Financial Times interview this week.
So will wages moderate this year? Analysts at Goldman Sachs predict that they will. Wage growth is expected to slow from 4% to 2% by the end of the year, as unemployment will grow.
How Well Can the US Consumer Stave Off the Recession? A CNN Comment on Moynihan’s Comment on Mortgage Rates and Inflation
Brian Moynihan, the CEO at Bank of America, told CNN around the holidays that the US consumer was almost single-handedly staving off recession.
This is a question that every investor has to consider, and which will help determine what the markets will look like this year.
And while officials welcomed softer inflation reports in recent months, they stressed that “substantially more evidence of progress” was required and said that inflation was still “unacceptably high.”
There is a chance that the Fed could opt for more modest increases or even none this year as the year progresses. That would be welcome relief to investors after four hikes of three-quarters of a point last year.
The home goods chain stated in the filing that it was not certain of its ability to continue.
Bed Bath & Beyond is preparing to file for bankruptcy in the coming weeks, according to the Wall Street Journal. CNN asked Bed Bath & Beyond if it had something to say.