Wall Street needs to look deeper into the economy: Wage growth and productivity growth through the first four months of the 2011 October job data released by the Fed
To get a better sense of what the economy is doing, Wall Street will need to dive even deeper into Friday’s jobs report. The unemployment rate is expected to remain at 3.7%, close to a half-century low.
Economists expect the headline figure to show 250,000 jobs were added in last month. That would be the smallest gain in almost two years, and well below the average of more than 510,000 over the past year.
Measures of inflation expectations, both those derived from financial markets and those based on household surveys, remain above pre-pandemic levels, but have moved down since earlier last year. Perhaps more importantly, since the beginning of the pandemic, wages have barely kept up with rising prices, whereas labor productivity has risen about 4%.
The drop would give Fed officials a proof of concept for the idea that gradual labor market re-balancing can hurt wage and price pressures without a recession, they write.
Wage growth, defined as average hourly earnings, rose 4.7% over the previous 12 months in October. Wage growth increased back up to 5.1% in November. Wages are expected to rise by less than 5% in December.
The Fed’s Corner: Why the World Is in a Precessionary Phase of Growth and Perturbation Disorder in the Last Two and a Half Years
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.
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.
The Federal Reserve raises interest rates to control demand and bring prices under control, but it has done so at the fastest rate in decades. Rising rates have made it more expensive for people to get a home mortgage or a car loan or to carry a balance on their credit card. The central bank’s benchmark interest rate has gone up from zero to 4.5% this week. But rates are now high enough to begin constraining inflation, and the Fed has indicated it may not push them much higher. The rate hike this week was less than the last four. The Fed expects rates to peak out next year at over 5%.
Nightcap jobs report from Belarus: Ford, Lukashenko, Musk, a curveball and U.S. regulators have ruled out a possible deal for the F-150 Lightning
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. Any price increases are banned from today. Prohibited!” The President is quoted saying something.
A source told CNN that lawyers for the two companies had agreed to delay Musk’s deposition in the case. Musk was originally scheduled to give a deposition today, but he threw a curveball earlier in the week, offering to buy the company under the original terms of the deal in exchange for scrapping the litigation. The two sides are still haggling over various conditions.
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
The Times Revisited: Peloton is Putting It Into Your Own Device: Why it is So Easy to Stop It, or How to Shut It Down
Boston Dynamics 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 though, they’ve now said they’re not doing that. Oh yes, well, Phew!
(CNN Business) Peloton announced yet another round of layoffs — its fourth round of cuts this year — as its new CEO attempts to shore up the company’s bottom line. Or, as the company spokesperson put it in a statement: Peloton is on a “transformation journey” in which it is “optimizing efficiencies” to “achieve break-even cash flow.” I would like to make it stop but I don’t know who writes this business-speak.
(CNN Business) Amazon suspended roughly 50 workers at its only unionized warehouse on Tuesday after they started a work protest following a fire. 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 Fed should be slowing the rate hikes because the interest rates needed to slow inflation aren’t known. The Fed has economic models that can provide some guidance on how high to raise rates, but these models proved unable to predict the inflationary surge that materialized in 2021, and their implications for the optimal level of interest rates must be taken with more than a grain of salt.
It is difficult to say how much damage today’s moves will cause, since so many are raising rates so quickly that it is hard to tell how intense a slowdown will be. Monetary policy takes months or years to kick in completely.
The United Nations agency that warned of the risks has joined a number of economists and international bodies in warning of a danger or over-doing it. The dollar is making imports from America more expensive, which is already making a cost-of-living crisis for developing economies worse.
Mr. Biden said the report showed “some progress” in combating the increases, noting that costs have climbed by less over the past three months than they had in the prior three months. But he also acknowledged that inflation remained painfully high.
Consumer prices continue to increase at a rapid rate. In February, the annual inflation was six percent, down from 9% a year earlier but still higher than the Fed’s 2% target.
The Fed’s recently revised script calls for the federal funds rate, the central bank’s benchmark borrowing rate, to move higher, but at a slower pace than in the past several months.
“Interest rates have risen at a whiplash-inducing speed, and we’re not done yet,” said Greg McBride, chief financial analyst at Bankrate. It will take some time for inflation to come down from this level, even if we start to see some improvement.
The Consumer Price Index for November was 7.1%, down from the 40-year high of 9.1% hit in June, as prices for used cars and lumber have come down.
Esther George, the president of the Federal Reserve Bank of Kansas City, said that there is a bit of a savings buffer still sitting for households and that it would allow them to spend in a way that keeps demand strong. “That suggests we may have to keep at this for a while.”
George is on the rate-setting committee and she is determined to control inflation. She’s warned against raising rates too rapidly at a time of uncertainty in the economy.
George said last month that he was in the camp of steadier and slower rate increases to see how the effects from a lag will unfold. “My concern being that a succession of very super-sized rate hikes might cause you to oversteer and not be able to see those turning points.”
“We are taking the only measures we have to bring inflation down,” the Fed chairman told Warren. “Will working people be better off if we just walk away from our job and inflation remains 5-6%?”
A Realistic Housing Market? Work, Pay and Salaries: The Latest JOLTS Survey on Jobs, Salaries, Layoffs, and the Pain of Inflation
Kansas City homebuilder Shawn Woods said his company has gone from selling a dozen houses a month before the Fed started raising rates to fewer than five.
“Never in my wildest dreams would I have thought we’d go from 3% [mortgage rates] to 7% within six months,” said Woods, president of Ashlar Homes and the Home Builders Association of Kansas City.
Woods said we’re in for a rough six or eight months. “Housing leads us into downturns and it leads us out of downturns.” We’ve been in a housing recession since the beginning of March or April.
Take the latest monthly JOLTS survey on job vacancies, quits and layoffs. Tuesday’s report surprised economists, who had predicted that the number of job vacancies in the United States would fall amid measures by the Federal Reserve to slow business growth in order to tame inflation. It went from 10 million to 10.7 million.
There are currently 1.9 jobs for every one person looking for work, a margin that the Fed worries is keeping inflation uncomfortably high. With plenty of options, workers are demanding higher wages; and with few applicants, managers are forking out higher pay, which bolsters demand for goods and services (and therefore drives up prices).
According to theDeutsche Bank report, deflation risks are seen as high across the United States, England and Scotland for the next 12 months. The next US recession is expected to begin in 2023, according to the report.
Unfortunately for Democrats trying to hold on to power next week, the pain of inflation appears to be outweighing any positive sentiment about job security. According to a new CNN poll, three-quarters of likely voters already feel like the country is in a recession.
The Pain of Homebuying: How Boomers and Gen Z Reformed in the Era of Real Estate and Housing Market Reform Efforts
There are more bad news for the younger generation trying to buy their first home. The typical age of a first-time homebuyer is now a record 36 years old, up from 33 last year.
Baby Boomer parents of large investment portfolios were happy to pass on some of the gains from the stock surge to their kids.
Those who were able to close on the home in the crush of competition should be very lucky.
For a historical comparison, the share of first-time buyers over the past decade has been between 30% and 40%. It was at 50% in the middle of the Great Recession.
Jessica Lautz, the NAR’s vice president of demographic and behavioral insights said they have to save while paying rent as well as student debt and other expenses. “And this year were facing increasing home prices while mortgage rates are also climbing.”
Mortgage rates rose throughout most of 2022, spurred by the Federal Reserve’s unprecedented campaign of harsh interest rate hikes to tame soaring inflation. But mortgage rates dropped in November and December, following data that showed inflation may have finally reached its peak, reports my colleague Anna Bahney.
Jenny Schuetz, an urban economist at the Brookings Institution wrote that the policies that regulate land use make it hard to add more homes in desirable locations.
Instead of rebuilding within existing neighborhoods, housing supply has expanded through subdivisions at the urban fringe. More people and homes are going to be put in areas that are vulnerable to wildfire.
It is a good time for local governments to rethink how they depict the American Dream as affordability reaches crisis levels. But that will only happen if those who stand to benefit — Millennials and Gen Z — are better represented in elected office. The upper-middle class Boomers are reluctant to change the system that got them where they are, as Schuetz argues.
Fed Rates in a Weak Market: The First Month of the Fed’s Curvature Resummation (The First Five Years)
The Fed bumped up rates by three-quarters of a percentage point in the past four meetings (June, July, September and November). That followed two smaller rate hikes earlier this year. The central bank’s key short-term interest rate, which sat at zero at the beginning of the year, is now at a range of 3.75% to 4%.
The president of the Federal Reserve Bank of Minneapolis said last week that if it is 25 or 50 basis points, he will be open to the possibility of a larger interest rate increase. A quarter or half a percent is how much it is. The basis point is a measure of how much of a percentage it is.
In the year 2022, investors found out that they can’t beat the Fed. Since a strong jobs report will likely correlate with a weak market, expect more positive economic news.
“If the Fed doesn’t have to tighten as aggressively, the economy will weaken less, and headwinds for stocks will be smaller,” wrote Bill Adams, chief economist for Comerica Bank in a note.
Inflation Before the Bell Newsletter: First Day after the First Three Months of the Great Recession. The Stock Market in a More Confident State
CNN Business had a version of the story. Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
The stock market had its best day since 2020 on Thursday, after a key inflation indicator came in softer than expected. Investors broke out their party hats as they interpreted the report to mean that peak inflation may finally be behind us. The Federal Reserve is less aggressive with rate hikes.
Investors will closely read the Fed’s economic outlook, the Summary of Economic Projections, which is also due out Wednesday. And they will watch Powell’s press conferences for clues about what’s to come — though they may end up sorely disappointed.
This is not the first time that there has been aCrypto winter. Bitcoin prices have been notoriously volatile over the past few years, but they have still done better than many major stock market indexes.
Assets have been hit like stocks and bonds, proving that the market has no place to hide with concerns about rate hikes and recession.
The Rise of Cryptocurrencies: Bitcoin Prices During the Covid Era and Decline After the First Coin Coin Coin Denominator
A crypto thaw: Bitcoin soared through the Covid-era on the wings of near-zero interest rates, stimulus cash and a big influx of investors from large-scale institutions. It reached a record high of nearly $70,000 in November.
The dollar strengthened significantly when central banks started raising rates to fight inflation, making the dollar the ultimate safe haven. At the same time, the economy began to sour and those new investors who still viewed bitcoin as a risky asset exited in droves.
Just look at bitcoin prices since the summer of 2020. They’re up more than 80%…even though it has been far from a smooth ride. The Nasdaq, by way of comparison, is only up about 1% from July 2020 levels.
The bottom line: With mortgage rates up four percentage points from a year ago, buyers’ buying power has plummeted. That has pushed many buyers out of the market and those who remain may need to look at a lower price point or make compromises on the location, size, or condition of a house in order to find one that is affordable.
Investors are now pricing in about a 70% chance of just a quarter-point rate increase at the Fed’s next meeting on February 1, according to Fed funds futures on the Chicago Mercantile Exchange.
It may not be that simple. The government reported Friday that a key measure of wholesale prices, the Producer Price Index, rose 7.4% over the past 12 months through November. That was a bit higher than the expected rate of 7.2% but a marked slowdown from the 8% increase through October.
The consumer price index data for November will be released on Tuesday just a day before the Fed announcement. Through October, the year-over-year increase was 7.7%.
Thomas Martin, senior portfolio manager at Globalt Investments, said that the idea of peak inflation was starting to look like it was valid. “It’s just how quickly does that come down?”
Implications of an Inflationary Season for the Retail Sales and the Consumer Spending Problem in the Context of the Consumer Kauffmanship Puzzle
Powell will give the report to Congress and then open himself up to hours of questions from lawmakers. There will be more passion back and forth than what we hear at the press conferences. Some lawmakers are not fond of the current Fed rate hiking regimen.
It’s not a cure for the market, said Truist Advisory Services’ co-chief investment officer. The rate cuts may not be enough. The risks of a recession are still high.
Economists are actually forecasting a small dip of 0.1% in retail sales from October. But it’s important to put that number in context. Retail sales surged 1.3% from September and 8.3% over the past 12 months.
So it’s possible consumers were simply getting a head start on holiday 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 is talking about inflation this year. In the future, it will be more about disinflation, said Cosserat.
Wall Street Volatility, Wall Street Violation, and Wall Street Sensitivities: An Overview of Stock Market Performance over the Last Three Months
What does that mean for investors? Cosserat said people should be looking for quality consumer companies that still have pricing power and can maintain their profit margins. Two stocks that his firm owns that he said fit that bill: Luxury goods maker Hermes
(HESAF) and cosmetics giant L’Oreal
(LRLCF).
UK retail sales and earnings from Darden Restaurants are on Friday.
The stock market went up in October and November on expectations that the Fed would scale back its rate hikes. They are still down sharply for the year, and stocks have been more volatile in December.
The yield on the 10-year US Treasury fell back to about 3.5% after climbing to 4.3% in late October. That was the highest the 10-year has been since 2008.
Tom Essaye, the founder and editor of the Sevens Report investment newsletter, said Monday that the macroeconomic focus will shift to how badly growth is slowing and earnings are falling before global central banks can hint at providing some help.
Investors may get some answers this week when FTX founder Sam Bankman-Fried testifies in front of the House Financial Services Committee on Tuesday. The Senate Banking Committee will hold its own FTX hearing Wednesday, but Bankman-Fried is not currently on the list of witnesses set to appear.
The Fed is Moving Faster Than Expected, and We’re Doing a Good Job: The Economy is Growing, Work Pays, and the Economy Is Growing
Maybe investors will be able to relax and take a deep breath before the Fed announcement and press conference later that day. There’s no guarantee of that.
“I wouldn’t see us considering rate cuts until the committee is confident that inflation is moving down to 2% in a sustained way,” Fed Chairman Jerome Powell said on Wednesday.
And the economy has so far withstood the Fed’s aggressive rate hikes. The job market is healthy, wages are growing, Americans are spending and GDP is strong. Positive earnings results are helping companies beat revenue expectations.
The European Central Bank, the Bank of England and the Swiss National Bank are expected to follow the United States with half-point moves of their own on Thursday. Norway, Mexico, Taiwan, Colombia and the Philippines will also likely increase their borrowing costs this week.
The hike, smaller than the previous four increases, comes after the latest government reading showed inflation is running at its slowest annual rate in nearly a year.
“It’s good to see progress, but let’s just understand we have a long ways to go to get back to price stability,” Fed Chairman Jerome Powell said at a press conference after the board announced its latest, smaller rate increase.
Consumer Prices Have Slowed in the Last Twelve Months after Central Bank Quarter-Varying Interest Rate Reduction and the Swine Flue
Many Americans, already contending with price increases in nearly every part of their lives, are feeling the effects as they pay more in interest on credit cards, mortgages and car loans. The average interest rate for used cars is nearly double that of last year, and they’re making the largest amount of monthly payments on record.
The central bank said in a statement on Wednesday that “inflation remains elevated, reflecting supply and demand related to the swine flue.”
After Friday’s report showing spending is still robust, some forecasters think the Fed will be even more aggressive in raising interest rates. That prospect is weighing on the stock market. The Dow Jones Industrial Average tumbled nearly 3% last week.
A lot of the decline is due to falling energy prices. The core inflation rate, which excludes volatile energy and food prices, has moved down a bit in the past year to 5.6% in December.
Rents continue to climb, but Fed officials believe the worst of shelter inflation may be behind us. Increases in market rents have slowed since spring.
The price of haircuts rose 6.8% in the last twelve months, while the price of dry cleaning jumped 7.9%. Services other than housing and energy account for nearly a quarter of all consumer spending.
The Rise and Fall of Consumer Prices: The Big Story of the Economy, the NHS, the Wall Street, and the End of Inflation
“We see goods prices coming down,” Powell said. We know what will occur with housing services. But the big story will really be the the rest of it, and there’s not much progress there. And that’s going to take some time.”
Powell has described the job market as out of balance, with more job openings than there are available workers to fill them. The jobs that were lost during the H1N1 flu have been replaced by the US economy, but the share of adults who are working or looking for work has not fully recovered.
Prices are still climbing much faster than Americans were used to before the pandemic, even though there are signs that the Federal Reserve’s dramatic steps to slow down inflation may finally be working.
The central bank has made it clear it won’t allow inflation to get out of hand and it raised its interest rates for the seventh time in nine months.
Gasoline prices have dropped sharply and are now lower than they were before Russia’s invasion of Ukraine. The prices of other goods like used cars and televisions have fallen as the supply chain gets untangled. Travelers are more price-conscious due to the demand that has faded and travel related prices have dropped as a result.
“I don’t think anyone knows whether we’re going to have a recession or not and if we do, whether it’s going to be a deep one or not,” he said on Wednesday.
What if the Jobs Data is Going to Be Soft during the First Half of Next Year? The Case for Inflation and a Soft Landfall
Changes in the weather or the war in Ukraine could cause big swings in prices at the gas station and the grocery store. The price of crude oil could go up or down depending on whether the world’s economic growth is faster or slower.
The price of services is heavily dependent on what happens to wages. That depends in turn on how many jobs the country adds each month, how many workers are available to fill those jobs, and how productive workers are when they’re employed.
Low unemployment rates and wage growth may be a good thing for the economy, but they have been bad for the markets.
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.
Some economists still think a Fed pivot could come quickly and with a recovery, if employment is soft in the first half of next year.
Jeremy Siegel, finance Professor at The Wharton School of the University of Pennsylvania, said in his weekly commentary for WisdomTree last week that he believes the jobs data is going to get worse quickly.
“This is what the path for a soft landing looks like,” says Aaron Sojourner, an economist at the Upjohn Institute for Employment Research. Inflation has come down but there’s not a recession.
Can Bankman-Fried return to the US ASAP if he appears at court martial? An investigation of bankman-fried’s supermarket stock trading
It remains unclear what time Bankman-Fried will appear in court. He will likely return to the US quick if he sucks up his court martial. Once in the states, he will appear before a US judge 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 of all the counts, Bankman- Fried could be in jail for up to 115 years on top of the prison sentence that he would get if he gets the maximum sentence.
On top of that, US market regulators filed civil lawsuits accusing Bankman-Fried of fraud, saying that he built a house of cards on a foundation of deception while telling investors it was one of the safest buildings.
The Saturday before Christmas — also known as Super Saturday — is typically the busiest shopping day of the November-December gift-buying period. This year, Christmas Day is on a Sunday and Christmas Eve is on a Saturday, meaning Super Saturday is on December 17th. According to the National Retail Federation, 158 million consumers are expected to shop that day.
Shoppers have only completed half their gift purchasing so far, the NRF estimates. With less than a week to go until Christmas, people have more buying to do.
Source: https://www.cnn.com/2022/12/19/investing/premarket-stocks-trading/index.html
The Season of Seasonal Decay: Retail Pressure on the Consumer to Make the Most Of Its Predictions And Implications For The New Century
It’s also costly for retailers to sit on an oversupply of merchandise for too long. Retailers who store their wares in their warehouses have a limited amount of space to work with and have some wiggle room to deal with excess inventory. If more space is needed for a long period of time that will add up to more costs.
Unsold products lose value over time. If the trend has passed, savvy shoppers will not buy last year’s style in fashion clothing. Stores are then forced to heavily discount, which impacts profitability.
The final full weekend before Christmas is when stores offer discounts of 50% to 60% and free shipping for online orders.
The professor of consumer behavior at Widener University in Chester, Pennsylvania, has been studying the holiday season for over two decades and has never seen it as Dramatic as it is now.
“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.”
According to the investment strategy analyst at Baird, the Fed could be “continually hawkish” at the start of the new century.
Powell noted in December that there is still a structural labor shortage and blamed it on early retirements, illnesses and deaths, as well as a plunge in net immigration.
Employers aren’t willing to lay off people, and other areas of the economy are showing such strength that unemployed people can get jobs quickly.
“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 Open Market Committee (FOCMC) meets in Silicon Valley on Thursday for two days of economic results and predictions for the coming quarter-independent report
Each year the Federal Open Market Committee holds eight regularly scheduled meetings. Over the course of two days, the 12-member group looks through economic data, assesses financial conditions and evaluates monetary policy actions that are announced to the public following the conclusion of its meeting on the second day, along with a press conference led by Chair Powell.
The meetings are scheduled for later in the century. 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.
A reduction in interest rate hikes by the Federal Reserve may be in the cards as traders bets on a further deceleration in jobs growth.
Still, traders have been glued to economic reports even more than usual as of late, and stocks have been incredibly choppy based on what the latest figures indicate about inflation.
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, as well as a report from payroll processing company ADP about the private sector job market. More alarm bells could be set off by further strength.
The level of wage growth will also be under scrutiny. An increase in worker compensation historically tends to lead to more inflation. If consumers have more disposable income, they can afford higher prices for products and services.
“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.
A report by strategists at the BlackRock Investment Institute also noted that inflation for services companies (think retail, banking and tech, among others) is likely to remain “sticky due to worker shortages fueling wage growth.”
The jobs report on Friday is likely to have more to do with pay than the number of jobs added. Wall Street may do the same.
Overall, the jobs market is still in good shape. But you wouldn’t know that from what’s going on in Silicon Valley. Software giant (and Dow component) The company said it was laying off 10% of its workforce.
The hope was that consumers and businesses would continue to spend heavily on tech products and services, a notion that seemed valid as the economy quickly rebounded from a brief recession in 2020.
Tech companies are starting to realize that they may have not factored in inflation when they drafted 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.
“Companies that last a long time go through different phases. Andy Jassy said in the memo that they are not in expansion mode every year.
The End of the Cold War: Defying the Cosmic Censorship Crisis with the U.S. Labor Market and the American Consumer
The global economy is clearly not out of the woods. The head of the International Monetary Fund is worried about a potential downturn that could hurt China and other emerging markets.
Anna Cooban reports that investors are starting to think that the consumer price increases in France and Germany might be slowing. A drop in energy prices was behind the retreat.
Consumers are continuing to pay higher prices. British shoppers felt the pinch of inflation and turned to German discount supermarket, which had its best December ever in the United Kingdom. Aldi said Brits bought more than 48 million mince pies, for example.
We’re in the salad days of the New Year — that period where many feel refreshed and motivated and perhaps even optimistic about the year to come. During this time in January, there is clarity that comes.
That said, the big question weighing on everyone’s mind is whether or not the United States will enter a recession this year. And there are three big “ifs” that will determine the health of the economy: The strength of the labor market, the American consumer and the Federal Reserve.
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 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. If job numbers come in as expected on Friday, 2022 will be the second-best year on record for job growth.
In an interview with the Financial Times this week, Gita Gopinath, second in command at the International Monetary Fund, urged the Fed to continue with rate increases this year, citing the labor market’s resilience.
Will wages moderate this year? Goldman Sachs analysts think that they will. They believe that unemployment will go up and wage growth will slow down by the end of the year.
Premarket Stocks: The Key to Preserving a Recession and Avoiding the Inflationary Paradigm in the United States
Bank of America CEO Brian Moynihan claims that the strength of the US consumer is the key to avoiding a recession.
US retail sales fell 0.6% in November, the weakest performance in nearly a year. Weak sales are likely to continue, say analysts, and if they do, retailers’ earnings will suffer.
Inflation outran wage growth and pandemic savings as disposable income fell from the spring of 2021, through the summer of 2022, While American bank accounts are still fairly robust, consumers are borrowing more. In the third quarter of 2022, credit card balances jumped 15% year over year. That’s the largest annual jump since the New York Fed began tracking the data in 2004.
This is the main question on every investor’s mind — and the answer will not only help determine what happens to markets this year, but also whether the economy will fall into recession.
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.”
Source: https://www.cnn.com/2023/01/06/investing/premarket-stocks-trading/index.html
Wall Street Journal Sentiment: The 30-year Fixed Rate Mortgage Market Isn’t Forbidden by Wall Street Buyers, But Bed Bath & Beyond Will Close in 2023
Freddie Mac said the 30-year fixed rate mortgage averaged 6.48%) in the week ending January 5, compared to 6.42% in the previous week. The 30-year rate was 3% a year ago.
The current market is driving away would-be buyers, partially because there’s little inventory as Americans are uninterested in selling and parting ways with their ultra-low mortgage rates.
There is “substantial doubt about the company’s ability to continue” because of its worsening financial situation, the home goods chain said in a regulatory filing.
But the Wall Street Journal reported that Bed Bath & Beyond is preparing to file for bankruptcy within weeks, citing sources familiar with the matter. Bed Bath & Beyond didn’t reply to a request from CNN.
Editor’s Note: Steven Kamin is a senior fellow at the American Enterprise Institute (AEI), where he studies international macroeconomic and financial issues. He served as director of the international finance division of the Federal Reserve from 2011 to 2020. His own opinions are included in this commentary. Do you have an opinion on CNN?
Price pressures are likely to continue to ease as remaining supply-side bottlenecks are resolved, the economy slows in response to the rise in interest rates, and labor markets tighten as a result.
The decision, at the conclusion of the Federal Open Market Committee’s first meeting of 2023, comes after months of jumbo-sized rate increases intended to cool the economy, and marks the return to a more traditional interest-rate policy.
The Best Valentine’s Day Ever: Fed President Thomas Barkin Addresses Wall Street Constraints on the Future and the Status of the US Economy
It is very difficult to manage the risk of doing too little and finding out later that we actually were close, but didn’t make it, Powell said Wednesday.
US markets jumped following the press conference, indicating the investors expect a more dovish Fed going forward. The S&P 500 closed the first day of February 1.1% higher after notching its best January in four years.
The “core” price was 4.4% higher than a year ago in December, but that excludes food and energy costs. That’s down from a 5.2% annual rate in September.
“We don’t want to be like ourselves in the future,” Fed governor Chris Waller said two weeks ago. “Back in 2021, we saw three consecutive months of relatively low readings of core inflation before it exploded in our face.”
If your heart goes pitter patter when central bankers discuss inflation (you know who you are on Twitter!), then this may be the best Valentine’s Day ever. Four members of the Federal Reserve (although not Fed Chair Jerome Powell) spoke on the economy today.
First up was Richmond Fed President Thomas Barkin, who is not a voting member on the interest-rate setting Federal Open Market Committee this year. Barkin said in an interview with Bloomberg TV Tuesday morning that there is “more persistence to inflation than maybe we’d all want,” adding that “inflation is normalizing, but it is coming down slowly.”
It’s hard to predict future economic data. She said it’s hard to have confidence in a outlook when inflation is higher than expected or when there’s hundreds of thousands more jobs than expected.
Inflationary Perspective on Consumer Spending: A FOC Congress Report on Philadelphia Fed President Patrick Harker’s Address of the Fed Open Market Committee
Philadelphia Fed President Patrick Harker sounded more dovish when he talked about inflation. He is a voting member of the Federal Open Market Committee. Harker said in a speech Tuesday that “we are not done yet” with rate hikes but added that “we are likely close.” Harker noted that “at some point this year, I expect that the policy rate will be restrictive enough that we will hold rates in place.”
Last up was New York Fed President John Williams, another FOMC member and also someone whose name has been mentioned as a possible successor to Lael Brainard as Fed vice chair now that President Biden is expected to name Brainard as his new top economic adviser.
Along those lines, Williams said that there will likely be “a period of subdued growth and some softening of labor market conditions.” He said he expected real GDP growth of just 1% this year and that the unemployment rate will “edge up over the next year” to between 4% and 4.5%. The jobless rate is currently 3.4%.
But there’s a catch: All that spending threatens to put more upward pressure on inflation at a time when the Federal Reserve is raising interest rates aggressively to keep prices in check.
A drop in consumer spending would help to cool inflation, but it would also make people worry about a recession. On the other hand, if spending continues to grow at this pace, it could force the Fed to raise interest rates even more aggressively to bring prices under control.
Personal spending rose 1.8% in January, according to the Commerce Department on Friday, as consumers splurged on both goods as well as services like going out for meals or the movies.
A lot of people have money in their pockets due to rising wages and job growth. This year, retirees got a raise. Social Security benefits rose by 8.7% in January, the largest cost-of-living increase in four decades.
Jonathan Silver, who tracks credit card use by about 100 million people nationwide, says that extra income will support consumer spending in the coming months.
In addition, many people socked away extra savings during the early months of the pandemic, when spending opportunities were limited and the government was distributing multiple rounds of relief payments. While bank balances have come down, Americans are still sitting on a lot of additional cash.
“We estimate households to still have about ten months of spending power if they continue to deplete excess savings at the pace they have over the past six months,” Wells Fargo economists wrote in a research note Friday.
What Happened During the Covid Pandemic? Consumer Choices in Las Vegas, and the Impact of Prices on Restaurants and Retailers
People who put off traveling during the worst of the pandemic are making up for lost time. More people visited Las Vegas last year.
“People realized what they were missing during Covid,” says Steve Hill, CEO of the Las Vegas Convention and Visitors Authority. “I think it has driven a real energy around getting back to experiences. I’m sure that you do the same shift from buying stuff to buying experiences.
Of course, not everybody is flush with cash. Some households are struggling. And businesses are not confident that consumers’ free-spending habits will continue.
Walmart is expecting only modest sales growth this year. Doug McMillon believes that shoppers are more focused on basic necessities than on more discretionary items.
McMillon said the customer are still spending money. “It’s obviously not as clear to us what the back half of the year looks like.”
But restaurant owner Cameron Mitchell remains cautiously optimistic. His food costs have began to level off. Staffing shortages at his restaurants have become less frequent. And he’s planning to open about half-a-dozen new locations this year.
Mitchell says that his gut is telling him as an operator. A year ago, people were aware of the need to raise prices. It was obvious and they were accepting of that. The consumer is starting to change. I think people want inflation to come down and they are not as tolerant any more of price increases.”
Shepherdson says he was a bit surprised by some people’s willingness to leap on those January numbers and proclaim that the economy isn’t responding to the Fed’s interest rate increases. The trends are quite favorable according to the Fed. Economic growth is slowing. Inflation is falling. But these things never happen in a straight line.”
Wall Street Predictions for Hell Week: Economic Outlook and Macroeconomic Policies from a Preparation for Wall Street Colliders
Wall Street is getting ready for Hell Week, in which a lot of jobs data will come over the next few days, which could lead to volatile market swings.
Job openings, hires and quits report for January and private payroll report for February are expected Wednesday. Challenger, Gray & Christmas are expected to report their February job cuts numbers on Thursday, while the Labor Department will announce their monthly employment report on Friday.
Josh spoke of being stuck in the middle. In the most interest rate-sensitive sectors of the economy activity has weakened but core areas are still showing resilience. We are in this in-between period where the impact of rates has not fully worked through the economy.”
The unemployment rate is likely to climb from its current 54-year low of around 4.5% to around 5% by the end of this year, according to Hirt.
Tuesday: Federal Reserve Chair Jerome Powell is expected to testify on economic outlook and monetary policy before the Joint Economic Committee; earnings from Dick’s Sporting Goods, Caseys General Stores, Squarespace, and Dole.
A preview of the report shows that the Fed chair plans to reiterate that more needs to be done to bring down annual inflation to the Fed’s target of 2%.
On Thursday, President Joe Biden is expected to present his annual budget to Congress. The plan comes at a time of deep fiscal unrest among lawmakers as arguments over the debt ceiling — the maximum amount the federal government is able to borrow — rage on. The Republicans say they won’t raise the limit until federal spending is cut. The White House is not willing to negotiate.
Biden has said his budget will help offset the growing costs of medicare and social security by raising taxes on the rich. The president also proposed a “billionaire” tax last year. Other Biden proposals, like increased tax on capital gains and on corporate stock buybacks, have roiled Wall Street.
What Do We Need to Say About the Economy? A State of the Art when the Fed is Running Strong and the Waller’s Action can Make It Work
Daly acknowledged that high inflation and the aggressive policy action taken by the Fed to bring it down have caused panic on Main Street and Wall Street. She stated that the responses ranged from fearing a recession to thinking they won’t do enough to get the job done.
She said that high inflation in goods, housing and other sectors along with strong economic data had led her to question the growth of disinflation.
Atlanta Fed President Raphael Bostic also said Wednesday that he believes the Fed needs to raise its policy rate by half a percentage point at the next meeting.
On Thursday, Fed Governor Christopher Waller warned that painful interest rates could go higher than expected, citing a slew of recent stronger-than-expected economic data.
And for the US economy, it could likely mean a “Wile E. Coyote moment,” Summers said, referencing the cartoon canine’s relentless — yet futile — pursuit of the speedy Roadrunner off a cliff and into mid-air.
But in the weeks following that meeting, there was a barrage of surprisingly strong economic data, showing blockbuster job gains, hearty consumer spending and unyielding inflation.
The best guess is for the fed funds rate to grow from its current range of 4% to 5.5%, although he wouldn’t be surprised if it went as high as 6.
The Senate Banking Committee was given testimony about the economy after a series of economic indicators that indicated the economy is running hotter than expected after aggressive action from the Fed.
She noted the Fed’s own December forecast showed the unemployment rate climbing to 4.6% by the end of this year. It would mean 2 million people out of work.
She said that you’re gambling with people’s lives. “You cling to the idea that there’s only one solution: Lay of millions of workers. We need a Fed that will fight for families.”
What is inflation? The case for the European Central Bank after Credit Suisse’s failure to increase its borrowing power by a few million dollars in November 2001
Republicans want the government to reduce spending if they want to raise the debt ceiling. The debt ceiling must be raised in order to enable the government to pay its bills.
“Congress really needs to raise the debt ceiling. Powell said that was the only way out. “And if we fail to do so, I think that the consequences are hard to estimate, but they could be extraordinarily adverse, and could do longstanding harm.”
That’s the approach the European Central Bank took last week, when it followed through with plans to raise rates by half a point even as one of Europe’s biggest banks, Credit Suisse, was swept up in the market mayhem.
Can you tell me what is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. The change in prices for everyday goods and services is known as the annual change in prices.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
What does inflation do to the poor? Poor households spend more money on necessities like food and housing than richer households, so they can’t always get by with inflation.
Can inflation affect the stock market? The stock market is prone to trouble due to rapid inflation. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
The Fed’s Troubles: How Banks Failed and the Banks It Replaced: The Case of Silicon Valley Bank and Signature Bank
The banking system appeared to be under some stress in recent days. The large withdrawals from regional banks have been stable, Treasury Secretary Janet Yellen said Tuesday. Bank stocks have gone up this week.
The banking issues of the past two weeks scrambled the plans. Why? As these charts explain, higher interest rates depress the value of financial assets because of the slowing economy. The asset declines led to poor balance sheets for some bank executives. When customers became worried that the banks would no longer have enough money to return their deposits, a classic bank run ensued. It led to the collapse of Silicon Valley Bank and Signature Bank, and others remain in jeopardy.
The central bank had raised its rates twice in the week before the collapse of Silicon Valley Bank and Signature Bank.
The Fed is also facing scrutiny for its oversight of the two failed banks. Fed supervisors reportedly identified problems with Silicon Valley Bank’s risk-management practices years ago, but the problems were not corrected and the California lender had to be taken over by the U.S. government after suffering a massive bank run.
“We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm,” said Michael Barr, the Fed’s vice chairman for supervision.
Others have called for an independent probe of the Fed’s role in the bank failures. Senators Elizabeth Warren, D-Mass., and Rick Scott, R-Fla., have also proposed replacing the Fed’s internal inspector general with an outside inspector, appointed by the president.
The Fed said recent developments are likely to result in tighter credit conditions for consumers and businesses, as well as to weigh on economic activity. The extent of these effects is not known.
The grease that makes small businesses’ wheels run is called credit and it is said to make the economy run.