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Consumer spending slowing, economy weakening

Jeffrey Bartash, 11-30, 23, Consumer spending softens. Is this a sign of a weakening economy?, https://www.marketwatch.com/story/consumer-spending-slows-a-sign-of-a-weakening-economy-53b20b65

The numbers: Consumer spending rose a mild 0.2% in October in potentially another sign of a long-predicted slowdown in the U.S. economy. Analysts polled by the Wall Street Journal had forecast a 0.2% increase. Consumer spending is the main engine of the U.S. economy. Outlays grew a robust 3.6% in the third quarter, but the increase was larger than normal and not seen as sustainable. Incomes moved up 0.2% in October, the government said Thursday. Key details: Americans spent more last month on health care, housing and utilities — all necessities. They reduced purchases of new cars — a byproduct of high prices and high interest rates — and spent less on gas as the cost of oil declined. The U.S. savings rate, meanwhile, rose a tick to 3.8%. The savings rate has fallen since the end of the pandemic, however, and suggests Americans have less financial cushion than they did a few years ago.

No recession now

Jeffrey Bartash, 11-30, 23, Consumer spending softens. Is this a sign of a weakening economy?, https://www.marketwatch.com/story/consumer-spending-slows-a-sign-of-a-weakening-economy-53b20b65

The so-called PCE price index, the Fed’s favorite inflation barometer, was flat in October. Big picture: The burst of growth in the third quarter appears to have faded. Higher interest rates have sapped spending on big-ticket items such as cars and discouraged business investment. And inflation, which is still high, has made Americans more choosy in what they buy. Consumers are unlikely to sharply curb spending as long as they feel secure in their jobs. The worst labor shortage in decades has given employees more leverage over employers and the situation is likely to persist for some time. Last Chance to Unlock Our Cyber Week Deal! Understand how today’s business practices, market dynamics, tax policies and more impact you with real-time news and analysis from MarketWatch. SUBSCRIBE NOW: 50¢ PER WEEK MarketWatch on Multiple devices Looking ahead: “There are signs consumers are becoming a bit choosier and price conscious, but no major pull-back in consumer spending that would signal an impending recession,” said chief economist Scott Anderson of Bank of the West.

Inflation low, rates will decline; more inflation will result in rate increases

AFP, November 29, 2023, https://news.yahoo.com/dollar-weakens-further-rate-cut-030003386.html, Dollar weakens as rate cut bets build, but equities mixed.

The dollar extended losses Wednesday as traders ramped up bets on the Federal Reserve cutting interest rates in the new year after a top official sounded an optimistic note on the battle against inflation. However, equity markets were mixed following another tepid performance on Wall Street, with focus on the release of the central bank’s favoured gauge of prices coming up this week. A string of indicators in recent weeks has suggested the US jobs market is softening and the economy slowing down — but not quickly enough to cause much concern about a recession. That has encouraged investors to shift back into risk assets, though the latest advance has been tempered by profit-taking ahead of what many hope will be a “Santa rally”. Data shows traders are now betting the Fed will cut rates in June, while they have priced an 80 percent chance of such a move in May, according to Bloomberg News. Billionaire investor Bill Ackman, founder of Pershing Square Capital Management, has said there could even be one as early as the first quarter. His comments came as Fed Governor Christopher Waller, usually one of the more hawkish members, struck an upbeat tone in a speech on Tuesday. “I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to two percent,” he told the American Enterprise Institute in Washington, referring to the bank’s target. “I am encouraged by what we have learned in the past few weeks — something appears to be giving, and it’s the pace of the economy.” – ‘Well-timed pivot’ – His counterpart Michelle Bowman said she would support more hikes if the data suggested they were needed but was much more conditional in her assessment than in the past. The more dovish comments, combined with falling yields and rate expectations, have dragged on the dollar, and it extended losses Wednesday. It was sitting at its weakest level since September against the yen, while it was at a near four-month low versus the euro and sterling. It was also off against most other units including the South Korean won, Australian dollar and South African rand. “The latest round of dovish Fed comments, which open the door to rate cuts in 2024, follows cautious comments from Fed officials in early October, which we noted as the start of the pivot,” Tony Sycamore, at IG Australia, said. “In my 30 years in markets, I have not seen a central bank come close to executing such a well-timed pivot, punctuated by a patch of softer inflation and labour market data.” Still, some analysts pointed out that Fed officials have alluded to higher Treasury yields acting as a substitute for further rate hikes, making it easier to pause, but falling yields were taking away that crutch. Equity markets struggled for traction ahead of the week’s key data release — the personal consumption expenditures (PCE), which is the Fed’s preferred guide for inflation. Hong Kong led the retreaters owing to heavy selling in big-name tech firms, while there were also losses in Tokyo, Shanghai, Seoul, Bangkok and Manila. Sydney, Singapore, Taipei, Mumbai, Bangkok and Jakarta edged up. Wellington was flat. London fell at the open, while Frankfurt rose and Paris was flat. The soft performance came after another unremarkable day on Wall Street, even as data showed US consumer confidence rose more than expected this month and a separate report pointed to healthy sales over the five-day shopping weekend that includes Black Friday.

Inflation slowing now

Matt Phillips, 11-27, 23, https://www.axios.com/2023/11/27/wall-street-predictions-2024

Why it matters: The ritual publications of Wall Street forecasts provide a snapshot of widely held views on what to expect. These predictions don’t necessarily turn out to be accurate — so they might better be described as a barometer of the current vibes. The big picture: Analysts think the economy and inflation will slow in 2024, with the Fed moving to cut rates by the end of the year. Yes, but: There’s less clarity about what that means for stocks. Here’s a quick rundown of what economists and analysts are expecting… Inflation: It’ll keep falling. Morgan Stanley: “A disinflationary cycle has been under way, mainly driven by core goods deflation and disinflation in housing.” Goldman Sachs: “At this point the hard part of the inflation fight looks over.” JPMorgan: “We think that core PCE inflation should moderate from a 3.4% annualized pace in 2023 to 2.5% in [the first half of 2024].”

Trivial slow-down now, growth will improve

Matt Phillips, 11-27, 23, https://www.axios.com/2023/11/27/wall-street-predictions-2024

The U.S. economy: A slowdown is coming. UBS: “While we expect a slowdown, we do not expect a significant contraction in activity.” Oxford Economics: “We expect a material slowdown in the US economy in the next couple of quarters to give way to a modest acceleration in GDP growth in the second half of 2024. In effect, the Fed will pull off a ‘soft-ish’ landing.” TD Securities: “Our 2024 Outlook revolves around our view of slowing US and global growth culminating in a mid-2024 US recession.”

No rate hikes now

Matt Phillips, 11-27, 23, https://www.axios.com/2023/11/27/wall-street-predictions-2024

The Fed: Rate hikes are finished. The debate is about whether there will be cuts in 2024. Morgan Stanley: “The Fed holds policy at a 5.375% peak of this cycle until June 2024, when we expect a cutting cycle to normalize rates to begin.” Goldman Sachs: “We expect the FOMC to deliver its first rate cut in 2024 Q4 once core PCE inflation falls below 2.5%.” Moody’s: “We envision [the Fed’s] first rate cut around the end of Q2 next year and a cumulative decline of at least 100 [basis points] to 4.25%-4.50% by December 2024.”

The fed won’t raise rates on the perception that the plan could be inflationary. If we win it’s not inflationary, there won’t be inflation in the data and the fed won’t react by raising rates

Joseph Adinolfini, 11-12, 23, https://www.marketwatch.com/story/stock-market-rally-faces-make-or-break-moment-how-to-play-u-s-october-inflation-data-51627a57?mod=home-page, MarketWatch, break moment. How to play U.S. October inflation data.

Speaking on Thursday, Federal Reserve Chairman Jerome Powell left the door open to another move, but qualified this — as the Fed almost always has — by insisting that whatever the Fed decides, it will ultimately depend on the data. These comments added even more emphasis to next week’s data, said Thierry Wizman, Macquarie’s global FX and interest rate strategist, in commentary emailed to MarketWatch on Friday. “Our own view — expressed over the past few days — is that the Fed — and by extension the fixed-income markets — won’t be anticipatory. Rather, the Fed will be highly reactive to the data,” he said. “The next milestone is…CPI. It is likely to have a calming effect on markets, as traders weigh the prospect that a very low headline CPI result will further cool the prospect of excessive wage demands in the labor market.”

Inflation will continue to increase

Vivien Lou Chen, 11-9, 23, Market Watch, Citadel’s Ken Griffin sees high inflation lasting for decades, https://www.marketwatch.com/story/citadels-ken-griffin-sees-high-inflation-lasting-for-decades-e7f74c92

Billionaire Ken Griffin, head of the Miami-based hedge-fund manager Citadel, said higher baseline inflation may go on for decades, caused by structural changes that are pushing the world toward de-globalization. Speaking at a Bloomberg forum in Singapore on Thursday, Griffin said this will have an impact on the cost of funding the U.S. deficit. He added that the U.S. is “spending on the government level like a drunken sailor,” and that higher interest rates are something the government hadn’t counted on “when we went on the spending spree.” The country had more than $33 trillion in national debt as of September and a fiscal deficit of almost $1.7 trillion for the fiscal year to date since October 2022. Read: Who is Ken Griffin? 5 things to know about the hedge-fund billionaire who just gave Harvard $300 million. Griffin’s comments came ahead of Thursday afternoon’s 30-year Treasury bond auction, which went badly and produced weaker-than-expected demand. Thursday’s sale was one of a trio of government auctions that have taken place since Tuesday, totaling $112 billion. The U.S.’s current fiscal situation is unsustainable and Americans realize “something is not quite right,” Griffin said, according to Bloomberg. Meanwhile, he said, there are multiple trends “that are pushing us toward de-globalization.” Griffin referred to what he calls the “peace dividend,” or economic boost that countries enjoy during periods of peace, and said that’s “clearly at the end of the road” given wars between Russia-Ukraine and Israel-Hamas. “We are likely to see higher real rates and we’re likely to see higher nominal rates.” Treasury yields jumped on Thursday, sending the policy-sensitive 2-year rate BX:TMUBMUSD02Y to its highest 3 p.m. Eastern time level since Oct. 31 as investors focused on the possibility of more action by the Federal Reserve. Meanwhile, all three major stock indexes DJIA SPX COMP ended the day lower. Speaking at a separate event earlier this week, Griffin said that investors need to invest in China since it’s no longer preferable to be only in U.S. companies. Also this week, he told the Financial Times that the Securities and Exchange Commission should focus on banks instead of hedge funds in tackling the risks arising from basis trades.

Debt will increase

Vivien Lou Chen, 11-9, 23, Market Watch, Citadel’s Ken Griffin sees high inflation lasting for decades, https://www.marketwatch.com/story/citadels-ken-griffin-sees-high-inflation-lasting-for-decades-e7f74c92

Billionaire Ken Griffin, head of the Miami-based hedge-fund manager Citadel, said higher baseline inflation may go on for decades, caused by structural changes that are pushing the world toward de-globalization. Speaking at a Bloomberg forum in Singapore on Thursday, Griffin said this will have an impact on the cost of funding the U.S. deficit. He added that the U.S. is “spending on the government level like a drunken sailor,” and that higher interest rates are something the government hadn’t counted on “when we went on the spending spree.” The country had more than $33 trillion in national debt as of September and a fiscal deficit of almost $1.7 trillion for the fiscal year to date since October 2022. Read: Who is Ken Griffin? 5 things to know about the hedge-fund billionaire who just gave Harvard $300 million. Griffin’s comments came ahead of Thursday afternoon’s 30-year Treasury bond auction, which went badly and produced weaker-than-expected demand. Thursday’s sale was one of a trio of government auctions that have taken place since Tuesday, totaling $112 billion. The U.S.’s current fiscal situation is unsustainable and Americans realize “something is not quite right,” Griffin said, according to Bloomberg. Meanwhile, he said, there are multiple trends “that are pushing us toward de-globalization.” Griffin referred to what he calls the “peace dividend,” or economic boost that countries enjoy during periods of peace, and said that’s “clearly at the end of the road” given wars between Russia-Ukraine and Israel-Hamas. “We are likely to see higher real rates and we’re likely to see higher nominal rates.” Treasury yields jumped on Thursday, sending the policy-sensitive 2-year rate BX:TMUBMUSD02Y to its highest 3 p.m. Eastern time level since Oct. 31 as investors focused on the possibility of more action by the Federal Reserve. Meanwhile, all three major stock indexes DJIA SPX COMP ended the day lower. Speaking at a separate event earlier this week, Griffin said that investors need to invest in China since it’s no longer preferable to be only in U.S. companies. Also this week, he told the Financial Times that the Securities and Exchange Commission should focus on banks instead of hedge funds in tackling the risks arising from basis trades.

Markets strong now

Mark Philips, 11-5, 23, Stocks enjoy best week in a year, https://www.axios.com/2023/11/06/sp500-stock-market-rally

Stocks ripped last week, with the S&P 500 posting its best showing in a year. Context: The rally reflected a perfect combination of inflation-easing economic data, dovish cooings by the Federal Reserve, and rock-solid earnings results. The numbers: The S&P rose 5.9%, the largest weekly leap since November 2022. The same for the Nasdaq composite index which rose, 5.2%. Between the lines: The real key to the rally was the sharp decline last week of long-term interest rates — the yield on the 10-year Treasury note — which plunged from almost 5% to 4.5%, a massive move in the typically staid bond markets. As we’ve written ad nauseam — especially last year when a surge in rates clobbered stocks — bond yields have been the single most important key to understanding the stock market in recent years. State of play: Stocks, which had been up nearly 20% earlier in the year, and saw those gains shrink to just 7% late last month, are now up 13.5% in 2023.

Massive debt now

Everett Kelley is national president of the American Federation of Government Employees, AFL-CIO, which is the nation’s largest federal employee union, representing 750,000 federal and D.C. government employees, November 4, 2023, Everett Kelley is national president of the American Federation of Government Employees, AFL-CIO, which is the nation’s largest federal employee union, representing 750,000 federal and D.C. government employees, The Hill, On debt commission, don’t trust partisan wolf in bipartisan sheep’s clothing, https://thehill.com/opinion/congress-blog/4293433-on-debt-commission-dont-trust-partisan-wolf-in-bipartisan-sheeps-clothing/

Our national debt as of this writing is about $33.7 trillion. That means the wealthiest 1 percent of Americans could write a check to wipe out the entire national debt today and still be left with $14.8 trillion — or about $4.4 million per person. That would leave each individual with four times the average wealth of an American household today.

No rate increases now unless inflation increases

Jeff Cox, 10-13, 23, https://www.cnbc.com/2023/10/13/philadelphia-fed-president-harker-advocates-holding-interest-rates-where-they-are.html, CNBC, Philadelphia Fed President Harker advocates holding interest rates ‘where they are’,
Philadelphia Federal Reserve President Patrick Harker said Friday he thinks the central bank can stop raising interest rates. “Absent a stark turn in what I see in the data and hear from contacts … I believe that we are at the point where we can hold rates where they are,” Harker said in prepared remarks for the Delaware State Chamber of Commerce. “Look, we did a lot, and we did it very fast.” As a voting member this year on the rate-setting Federal Open Market Committee, Harker’s words carry extra weight as policymakers contemplate their next step forward. Though his remarks align with what several other officials have said recently, they are perhaps the most explicit endorsement yet of a halt in rate hikes. The Fed has raised its benchmark borrowing rate 11 times since March 2022, totaling 5.25 percentage points. In September, the FOMC chose to hold rates steady as members differed over where inflation is headed. In recent days, multiple Fed officials have cited the tightened financial conditions brought on by a surge in Treasury yields as helping the central bank in its quest to slow the economy and bring down inflation. However, Harker did not rely on the market moves but instead said the Fed simply has made substantial progress in bringing down prices without causing a surge in unemployment or otherwise tanking the economy. He said it can now watch the impact that its rate hikes are having and use incoming data as its guide to where policy needs to go. “Holding rates steady will let monetary policy do its work. I am sure policy rates are restrictive, and as long they remain so, we will steadily press down on inflation and bring markets into a better balance,” he said. “By doing nothing, we are still doing something. And, actually, we are doing quite a lot.” Reports this week showed that 12-month rates for inflation are coming down but remain above the Fed’s 2% annual target. Separate readings on producer and consumer prices both were higher than Wall Street economists had expected, raising the specter that the Fed might have to do more. However, Harker said he won’t be moved by one month of data, noting that the Fed’s preferred measure, the personal consumption expenditures price index, in August showed its smallest monthly increase since 2020. “We will not tolerate a reacceleration in prices,” he said. “But second, I do not want to overreact to the normal month-to-month variability of prices.” “We remain data dependent but patient and cautious with the data,” he added. Harker noted that the Fed remains attuned to a variety of risks, from the banking turmoil earlier this year to rising credit card balances and labor strife. But he said the economy overall has held up, and he thinks unemployment will at most edge higher as more people enter the workforce and labor market imbalances work themselves out. Still, he did not provide any indication that he expects cuts anytime soon. “I do subscribe to the new moniker, ‘higher for longer.’ I didn’t coin it, but my expectation is that rates will need to stay high for a while,” he said. However, added that he “would have no hesitancy to support further rate increases” if inflation were to rebound.

No alternative to the US dollar

Sargen, 10-13, 23, Nicholas Sargen, Ph.D. is an economic consultant with Fort Washington Investment Advisors and is affiliated with the University of Virginia’s Darden School of Business.  He has authored three books including Global Shocks: An Investment Guide for Turbulent Markets, The Hill, This time around, war in Israel shouldn’t upend the market, https://thehill.com/opinion/finance/4252553-this-time-around-war-in-israel-shouldnt-upend-the-market/

Finally, another consideration that mitigates the risk of an oil price spike is the strength of the U.S. dollar, which has appreciated by 10 percent on a trade-weighted basis over the past two years. Moreover, there currently is no viable alternative to challenge the status of the U.S. dollar as the world’s reserve currency. This is in marked contrast to what happened in the 1970s when the dollar was perennially weak as the United States became a high-inflation country. Consequently, OPEC members were motivated to raise the price of oil at that time to recoup some of the loss of their purchasing power resulting from oil being denominated in dollars.

Economy slowing but no recession now

David Harrison, 9-24, 23, https://www.wsj.com/economy/u-s-economy-could-withstand-one-shock-but-four-at-once-8312ba51, Wall Street Journal, U.S. Economy Could Withstand One Shock, but Four at Once?

Many analysts expect slower economic growth this fall but not a recession. Daco forecasts economic growth to slow sharply to a 0.6% annual rate in the fourth quarter from an expected 3.5% gain during the current quarter. Economists at Goldman Sachs expect growth to cool to a 1.3% rate next quarter, from a 3.1% gain in the third. So far in 2023, robust consumer spending and historically low unemployment have supported solid U.S. economic activity, despite the Federal Reserve lifting interest rates to the highest level in 22 years to fight inflation by slowing growth. Growth in Europe and China, meanwhile, has slowed sharply. One economic threat is a wider and more prolonged strike by the United Auto Workers against three Detroit automakers. Nearly 13,000 workers began striking three plants on Sept. 15. And UAW President Shawn Fain said Friday the strikes would expand to 38 General Motors and Stellantis parts-distribution centers across 20 states. The initial impact of the limited strike is expected to be modest, but a broader work stoppage could curb auto production and drive up vehicle prices. Workers at auto-parts suppliers could also lose their jobs.

Economy stable, fed won’t raise rates now, next rate increase will be determined in November

Tobias Burns, 9-20, 23, The Hill, Fed faces risks as inflation fight runs into election, https://thehill.com/business/4212209-fed-faces-risks-as-inflation-fight-runs-into-election/

The Federal Reserve is expected to hold interest rates steady this week as the central bank faces a slew of economic and political risks while attempting to quash inflation. The Federal Open Market Committee (FOMC), the panel of Fed officials responsible for setting interest rates, will wrap up a two-day meeting Wednesday and likely keep borrowing costs unchanged. Experts expect the Fed to tread carefully as the economy perches on a ledge of shifting indicators and divergent projections. While inflation has accelerated for two consecutive months, a steadier slowdown in hiring, job openings and economic growth could be the signs of the Fed’s rate hikes taking hold. “The effects of the interest rate hikes have not been seen widely because typically it takes about five quarters to see the real impact,” Mohammad Bhuiyan, a professor of entrepreneurship at Tuskegee University in Alabama, told The Hill. ADVERTISING Bhuiyan said it takes roughly 15 months for rate hikes to hit the economy. “That’s the lag time,” he said. A pause would allow the Fed to step back and see if the economy continues to slow before its next meeting in November. Some Democrats and progressive policymakers insist the Fed has already done enough to curb inflation and risks throwing the economy into an avoidable recession. But the Fed is also facing growing criticism from Republicans, including a cadre of presidential candidates who are pledging to make major changes at the central bank if elected.

Economy strong, inflation sliding

Neil Irwin, 9-18, 23, https://www.axios.com/2023/09/18/inflation-federal-reserve-whats-next, As inflation drops, the Fed’s big challenge: What’s next?

At the Federal Reserve’s policy meeting this week, the big question will be less about what to do now (which is likely “nothing”) but what, if anything, to do next. Why it matters: Inflation looks to be on a glide path downward, even as economic growth shows surprising resilience. Against that backdrop, Fed officials must decide whether they need to push interest rates even higher to truly vanquish inflation. Assuming the Federal Open Market Committee elects not to raise rates, the tone of chair Jerome Powell’s post-meeting news conference could offer important clues about how they’re leaning. Also taking on particular importance is the “dot-plot,” the visual representation the Fed publishes quarterly capturing the range of opinions among 19 top policymakers about where rates are likely to go. The details: In the last release of the projections in June, 12 of 18 top officials anticipated it would be appropriate for their target interest rate to rise above 5.5% this year, which would imply one additional rate hike by December. Since then, inflation has mostly downshifted, giving the officials greater comfort that the actions they have already taken will do the job and bring inflation down to target. However, growth has been surprisingly strong. In June, the median Fed official expected full-year GDP growth of only 1%. Now, it looks likely to be north of 2%, in conflict with Fed officials’ oft-stated view that it will take a period of below-trend growth to bring inflation down. As such, an open question for Wednesday’s meeting is whether there is still a comfortable majority of officials anticipating another rate hike. Also worth watching is what happens with the officials’ 2024 dots. A majority of officials anticipated interest rates below 5% at the end of 2024, implying at least two interest rate cuts next year. A distinct possibility is that the dots will simultaneously imply less support for another rate hike this year and more support for keeping rates high through next year. And keep an eye on the officials’ views of where rates should settle in the long term, which has crept up in light of high budget deficits and shifting patterns of globalization. What they’re saying: “FOMC participants will leave the meeting more convinced that the July hike was the last for the cycle,” said Tim Duy, chief U.S. economist at SGH Macro Advisors, in a note. “That said, the Fed will not declare absolute victory just yet,” he added. “The Fed has been caught off guard by the faster-than-expected third quarter growth, and that will leave it wary that it still has some more work left ahead of it.”

Oil prices will stabilize at $80 per barrel

Sam Meredit, 9-15, 23, https://www.cnbc.com/2023/09/15/oil-to-hit-100-analysts-expect-a-return-to-triple-digits-before-2024.html, The Hill,

Tamas Varga of oil broker PVM said a jump toward the $100 milestone was “plausible,” citing production constraints from Saudi Arabia and Russia, upcoming refinery maintenance, the structural shortage of diesel in Europe and a growing consensus that the current cycle of tightening will soon come to an end. “Nonetheless, such a rally also entails renewed inflationary pressure,” Varga told CNBC on Friday. This was reflected, he said, in this week’s U.S. inflation data and the rise in consumer spending, which indicated that interest rates may stay higher for longer and could have a negative impact on both economic and oil demand growth. “For this reason, I believe that any spike towards $100 will be short-lived,” he added. ‘A significant supply shortfall’ The International Energy Agency warned on Wednesday that Saudi Arabia and Russia’s production constraints would likely result in a “substantial market deficit” through the fourth quarter. The world’s leading energy authority said in its monthly oil report that output curbs by OPEC and non-OPEC members of over 2.5 million barrels per day since the start of the year had so far been offset by members outside the OPEC+ alliance — such as the U.S. and Brazil. “From September onwards, the loss of OPEC+ production, led by Saudi Arabia, will drive a significant supply shortfall through the fourth quarter,” the IEA said. Christyan Malek, global head of energy strategy and head of EMEA oil and gas equity research at JPMorgan, said he believes the price of oil is likely to trade in a range of $80 to $100 in the short term — and at around $80 over the long term. “As we go into next year, it will be very dependent on how we see China evolve … what does the US do? And how does shale respond?” Malek said Monday, noting the U.S. appears to have limited options if it is to try to drive oil and gasoline prices lower ahead of next year’s pivotal presidential election. “I think for us one of the important data points for this year as a whole is that we tested $70. You have to test the marginal costs, we can all predict it, and we got there. We got to $70, and it bounced off so with that marginal cost, we’re looking at a much higher long-term price,” he added. Lone pumpjack located in the middle of large solar array outside of Bakersfield, Kern County, California, USA. A lone pumpjack located in the middle of a large solar array outside of Bakersfield, Kern County, California. Citizens Of The Planet | Universal Images Group | Getty Images Not everyone believes oil prices are destined for an imminent return to $100, however. Ole Hansen, head of commodity strategy at Saxo Bank, says the crude sector looks increasingly overbought in the near-term and appears in need of a pullback. “We do not join the $100 per barrel camp but will not rule out a relatively short period where Brent could trade above $90,” Hansen said in a research note published Sept. 8. “From a technical perspective, Brent has been in a bullish uptrend since July and needs to hold support at $89 as a break may trigger long liquidation towards $87.5 from traders who bought the production cut extension news,” he added. “However, the medium-term uptrend is still firm with trendline support near $85, potentially being the bottom of a new higher range supported by OPEC’s active management of supply.”

Inflation low, no recession

Zahreb Taylor, 9-11, 23, Business Insider, The Fed may have beaten back inflation and skirted a recession for now, Goldman Sachs says, https://www.businessinsider.com/fed-economy-outlook-inflation-recession-goldman-sachs-interest-rates-risk-2023-9

The Federal Reserve appears to have beaten back inflation and skirted a recession for now, according to Goldman Sachs’ chief US economist. In a “Goldman Sachs Exchanges” podcast episode, David Mericle shared his views on the US economy, inflation, and what the Fed’s likely to do next. Mericle said there’s “a lot of signs that inflation will fall quite a bit further.” They include a rebalancing of the US labor market, and falling short-term inflation expectations. “I think we’re in a situation where, with a lag, we should expect inflation to largely normalize,” Mericle said. Advertisement As for the fact that energy prices are on the rise again, Mericle said it’s a “mild annoyance rather than a game changer” for inflationary pressures. He noted, however, that the Fed still has work to do in its battle against inflation, specifically in bringing it down to its 2% target. “And so the best guess is that we’ll get back to 2%, but by no means are we definitively there or even close enough. So too soon to say that we’ve beaten this problem,” he said. Inflation in the US has substantially cooled to around 3% in recent months, down from a 40-year high of over 9% last summer, at least in part because of the Fed’s steep interest rate hikes. The Fed’s next policy meeting is scheduled for this month, but Mericle said the central bank is unlikely to increase rates in September. He also penciled in the Fed’s first rate cut for the second quarter of 2024. Moreover, Mericle dismissed fears of a looming recession triggered by the central bank’s inflation fight. “I just don’t think that there’s that much risk of monetary policy miscalibrating and causing a recession at this phase,” he said.

Dollar strong, economy strong

Anna Cooban, 9-8, 23, https://www.cnn.com/2023/09/08/investing/us-dollar-value/index.html, The US dollar is king again. Here’s why

The US dollar is enjoying its longest winning streak in nearly nine years. The greenback was heading for its eighth-straight week of gains against a basket of other major currencies on Friday, its best run since winter 2014-2015. It has gained 5% since mid-July. The rally comes after months of volatility, fueled by concerns that the dollar may be losing its status as the world’s reserve currency. Speculation about the potential de-dollarization of global trade rose again last month after the Chinese-led expansion of the BRICS group of nations to include major oil producers, such as Saudi Arabia. “Rumors of the US dollar’s demise continue to be greatly exaggerated,” James Athey, investment director at Abrdn, an asset manager, told CNN. The US Dollar Index, which now stands at its highest level in six months, has been buoyed by a slew of positive economic data from the United States in recent weeks — fueling expectations that the Federal Reserve will keep interest rates higher for longer. Higher interest rates tend to boost the value of a country’s currency by attracting more foreign capital, as investors anticipate making bigger returns. Meanwhile, storm clouds have gathered over the economies of China and Europe. “The US economy continues to demonstrate remarkable strength, while matters in China and Europe, in particular, seem to be descending into a much more recessionary place,” Athey added. Resilient US economy US unemployment is hovering near its lowest level in 50 years. Hiring remains solid, having notched its 32nd consecutive month of growth in August. And wages, when adjusted for inflation, are rising. Many economists have revised their growth forecasts higher in response to all the good news. A so-called “soft landing” — that is, when a central bank successfully lowers inflation without tipping the economy into recession — now looks increasingly likely. “The US economy continues to surprise to the upside,” Carsten Brzeski, global head of macroeconomic research at ING, told CNN. “[It] seems to be more resilient than feared.” That should give American consumers the confidence to carry on spending — and the US Federal Reserve greater incentive to keep interest rates stuck at a 22-year high in an attempt to cool inflation. The Fed has “less of a reason to cut rates aggressively next year,” Brzeski said, adding that a comparatively weak economic performance by Europe leaves “very little room for the [European Central Bank] to continue hiking” its main lending rate. Russ Mould, investment director at AJ Bell, told CNN that the difference between the two interest rates — “and the prospect that it may remain and not shrink” — was a “big factor in the dollar’s renaissance.” Weak economies elsewhere Europe and China are in a tricky economic spot. The euro has lost 4.4% of its value to trade at $1.07 since mid-July. The Chinese yuan has slumped by 2.6% in that time to hit its lowest level against the dollar in 16 years. While the US could clinch a “soft landing,” Athanasios Vamvakidis, head of G10 FX Strategy at Bank of America Global Research, told CNN, “the eurozone seems closer to a stagflation scenario” — the dreaded combination of high inflation and little, if any, economic growth. Europe’s official statistics agency Thursday revised down its estimate of GDP growth for the 20 countries sharing the euro from 0.3% to 0.1% for the second quarter of this year. Industrial production in Germany fell for the third-straight month in July, official data also showed Thursday, adding to a cocktail of woes for Europe’s largest economy. In this photo illustration, a person seen holding 5 and 20 US dollar bills in his hand. In this photo illustration, a person seen holding 5 and 20 US dollar bills in his hand. Sheldon Cooper/SOPA Images/LightRocket/Getty Images A weaker euro will likely push up the price of imports, in turn, fueling inflation. Adding to the upward pressure are crude oil prices, which have climbed in recent weeks as Saudi Arabia and Russia have extended supply curbs. China’s economy is also facing a wave of huge challenges: Consumer prices are falling, a real estate crisis is deepening and exports are in a slump. The People’s Bank of China has cut key interest rates on mortgages and on its lending to banks in recent months to help boost demand for credit. “China’s weakness not only has weighed on the [yuan], but other key currencies in the region, as well as those major trading partners, including the euro,” Alex Cohen, senior FX strategist at Bank of America Global Research, told CNN.

No economic slow-down now

Swati Panday, 9-4, 23, Yahoo News, Goldman Cuts US Recession Chances to 15% on Improved Inflation, https://finance.yahoo.com/news/goldman-cuts-us-recession-chances-022752901.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZHJ1ZGdlcmVwb3J0LmNvbS8&guce
_referrer_sig=AQAAAC8im59o1RqKL4gT7z_ZLabPno26Nm57R0_esPJMDovcUd_

(Bloomberg) — Goldman Sachs Group Inc. now sees a 15% chance the US will slide into recession, down from 20% previously as cooling inflation and a still-resilient labor market suggest the Federal Reserve may not need to raise interest rates any further. “First, real disposable income looks set to reaccelerate in 2024 on the back of continued solid job growth and rising real wages,” Jan Hatzius, chief economist at Goldman, said in a research note. “Second, we still strongly disagree with the notion that a growing drag from the ‘long and variable lags’ of monetary policy will push the economy toward recession.” He sees the drag from policy tightening continuing to diminish “before vanishing entirely by early 2024.”

NU: Massive deficit increase

Neil Irwin, 9-4, 23, https://www.axios.com/2023/09/04/federal-deficit-double-despite-economic-growth

The federal deficit is expected to nearly double this year, from about $1 trillion last year to $2 trillion for the fiscal year ending Sept. 30 Why it matters: There’s no precedent for deficits this large, as a share of the economy — outside war, deep recession or pandemic. The WashPost’s Jeff Stein reported Sunday on the stunning projected figure from the Committee for a Responsible Federal Budget. Between the lines: Such huge spending imbalances contribute to high interest rates for consumers — including mortgages — in the short run. In the long run, it means interest costs will likely squeeze all other federal priorities. What’s happening: Bigger interest payments + lower tax receipts, despite strong economic growth. “A strong economy usually reduces the deficit. Not this time,” Stein writes. Reality check: The annual deficit was even higher — $2.8 trillion — in 2021, amid record COVID spending, according to the Congressional Budget Office.

Economy strong, inflation stable

Julia Shapero, 9-2, 23, The Hill, Raimondo touts Biden economy after jobs report while acknowledging ‘inflation still exists’, https://thehill.com/homenews/administration/4184700-raimondo-touts-biden-economy-after-jobs-report/

“That being said, if you look at where we are today compared to when the president took office, it’s an unbelievable story of progress,” she added. The August jobs report, which was released on Friday, indicated that the labor market may finally be cooling after an intense cycle of interest rate hikes by the Federal Reserve in an attempt to rein in inflation. Inflation, which skyrocketed to a 40-year high last June, has eased in recent months, falling to 3.2 percent in July. While it has improved, inflation has remained above the 2-percent level sought by the Fed, and the labor market has been surprisingly resilient to its rate hikes. However, the positive movement in Friday’s jobs report makes it increasingly likely that the Fed will forgo a rate hike during September’s meeting and could potentially mark a turning point in its fight against inflation. Raimondo also praised the U.S. economy’s recovery from the pandemic, arguing that the country has “emerged the fastest and the strongest” from COVID-19. “If you had told me when we started — based on where the economy was, how high the unemployment rate was, how disrupted supply chains were — that we’d be sitting here now with this jobs picture, I might not have believed it,” Raimondo said. “I mean, it’s just a stunning amount of progress.” “So, I don’t want to minimize what Americans are feeling, and that’s why we get up and go to work every day,” she added. “But this economy, by any measure, is doing incredibly well and much better than anyone could have predicted, I think, three years ago when we started.”

Inflation moderating, no recession, any existing rate hike priced in

Jeff Cox, 9-1, 23, https://www.cnbc.com/2023/09/01/jobs-report-august-2023.html, ECONOMY

Unemployment rate unexpectedly rose to 3.8% in August as payrolls increased by 187,000

The unemployment rate rose sharply in August, as the summer of 2023 neared a close with a job market in slowdown mode. Nonfarm payrolls grew by a seasonally adjusted 187,000 for the month, above the Dow Jones estimate for 170,000, the U.S. Bureau of Labor Statistics reported Friday. However, the unemployment rate was 3.8%, up significantly from July and the highest since February 2022, and estimates for previous months showed sharp downward revision. That increase in the jobless level came as the labor force participation rate rose to 62.8%, the highest since February 2020, just before the Covid pandemic declaration. A more encompassing unemployment measure that counts discouraged workers as well as those working part-time for economic reasons jumped to 7.1%, a 0.4 percentage point increase and the highest since May 2022. Average hourly earnings increased 0.2% for the month and 4.3% from a year ago. Both were below respective forecasts of 0.3% and 4.4% and another possible sign that inflation pressures are easing. Health care showed the biggest gain by sector, adding 71,000. Other leaders were leisure and hospitality (40,000), social assistance (26,000) and construction (22,000). Transportation and warehousing lost 34,000 and information declined by 15,000. While the nonfarm payrolls growth continued to defy expectations, previous months’ counts were revised considerably lower. The July estimate moved down by 30,000 to 157,000. June was revised lower by 80,000 to 105,000, making that the smallest month gain since December 2020. The unexpected increase in the jobless rate came as the rolls of the unemployed grew by 514,000. The household count of those employed increased by 222,000. When it comes to the closely watched jobs count, August is often one of the most volatile months of the year and can be subject to sharp revisions later. While the initial estimate and final counts in 2022 were little changed, the 2021 figure ended up more than doubled in the final count. August’s jobs reading comes at a pivotal time as Federal Reserve officials look to chart a course forward for monetary policy. Markets widely expect the Fed to skip a rate increase at its September 19-20 meeting. However, market pricing still points to about a 38% probability of a final hike at the Oct. 31-Nov. 1 meeting, according to CME Group data. Recent data has painted a mixed picture of where the economy is headed, with overall growth holding steady as consumers continue to spend, but the labor market beginning to loosen from historically tight conditions. Job openings, for instance, fell to 8.83 million in July. That’s still well above where they were prior to the Covid pandemic but is the lowest level since March 2021. That equated to 1.5 openings for every worker the BLS counts as unemployed. At the same time, inflation has shown signs of cooling even though it remains well above the level where Fed policymakers feel comfortable. The Commerce Department reported earlier this week that personal consumption expenditures prices, the Fed’s preferred inflation gauge, rose just 0.2% in July. That equated to a 3.3% 12-month gain, or 4.2% when excluding food and energy – the “core” level that the Fed thinks is a better measure of longer-term inflation. Consumer spending was strong during the month, rising 0.6% when adjusted for inflation even though real disposable personal income fell 0.2%. Households have been using credit cards and savings to compensate, as the personal savings rate fell to 3.5% in July, down sharply from the 4.3% level in June. The department also reported that gross domestic product increased at a 2.1% annualized rate for the second quarter, a level that is still above what the Fed considers trend growth for the U.S. economy but below the initial 2.4% estimate. However, the Atlanta Fed is tracking third-quarter GDP growth at a robust 5.6% pace. That counters long-running expectations that the economy is likely to hit at least a shallow recession following a series of aggressive Fed interest rate hikes.

Recession now

William Edwards, 8-22, 23, https://finance.yahoo.com/news/wall-street-declaring-victory-too-092602848.html

Wall Street and top economists are declaring an “all clear” on the US economy — but some experts warn that a recession is still on the way. There’s a saying in markets that being early is being wrong. Given that maxim, it’s fair to say that over the past two years pessimistic economists and market analysts have been wrong. Bearish forecasters began to warn of a recession and corresponding stock-market selloff as early as April 2022. Take, for example, an October 2022 Reuters poll in which 65% of the economists it surveyed said a recession would arrive in the following 12 months. Things were supposed to get ugly, and soon. Fast-forward to today and the sun is still shining on the US economy. Unemployment is below 4%, inflation is sliding, consumers are still spending, and the S&P 500 rallied as much as 20% this year before cooling off recently. And GDP is projected to grow by 1.6% in this third quarter, economists surveyed by the Philadelphia Fed said. Hardly recession material. Optimistic, bullish economists are of course relishing the opportunity to say “I told you so,” as consensus starts to bend toward their view that the economy will achieve a soft landing — lower inflation without the need for an economic shock like a recession. Economists at Bank of America and JPMorgan now say a recession will not happen this year, or perhaps at all. But just because the economy’s flight path seems gentle now doesn’t mean that there won’t be turbulence ahead. According to top Wall Street strategists and economists I’ve spoken with in recent weeks, there’s plenty of evidence that a recession is on the way. In other words, bulls are declaring victory far too early. “To say today that we’re going to have a soft landing is so premature,” Michael Kantrowitz, the chief investment strategist at Piper Sandler, told me. “History tells you you really can’t make that assessment.” The fulcrum on which much of the economy pivots is the Federal Reserve’s interest-rate policies. Higher interest rates for various types of loans — mortgages, auto loans, and credit cards — hamper people’s ability to afford purchases big and small, not to mention weigh on businesses’ ability to borrow. In theory, these higher interest rates push down demand and slow inflation by forcing companies to cut prices to attract stretched-thin customers. Lower interest rates work in the reverse, stimulating the economy by making it cheaper to borrow. The Fed’s onslaught of interest-rate increases over the past 16 months — going from near zero to 5.5% — have been at the center of the “recession is coming” argument all along. The current hiking cycle is the fastest and most aggressive since the early 1980s, and this historic increase in the cost of borrowing was supposed to put the brakes on demand, slow consumer spending, hurt corporate earnings, and cost people jobs. Instead of this hard reboot, however, the economy has been through more of a soft reset. Inflation as measured by the Consumer Price Index has fallen from its year-over-year peak of 9.1% in June 2022 to 3.2% as of July. And Americans have been spending right through the higher interest rates: Personal consumption expenditures and retail sales numbers have continued to forge upward. Sure, the economy has seemed to shake off the Fed so far, but experts say that higher cost of debt will eventually bite. As the legendary economist Milton Friedman famously said interest rate changes have “long and variable lags” — it takes time for the changes to work their way to households and businesses. Bob Doll, the chief investment officer at Crossmark Global Investments and a former chief US equity strategist at BlackRock, told me that the full impact has yet to be felt. “To think that the only consequence is that a couple banks go under in the middle of March for about a day and a half, and then we move on our merry way, I think is a little naive,” Doll told me, referring to the collapse of Silicon Valley Bank and other regional banks. David Rosenberg, an economist and the founder of Rosenberg Research, was one of the first to sense the cataclysm that turned into the 2008 recession. He’s been calling for a recession since last year and told me that despite the more upbeat recent data, a downturn is still on the way. Rosenberg noted that the average time from the Fed’s first interest-rate hike in a cycle to the start of a recession is about 15 months — and the current hiking cycle has been going for 16. But as was the case in the 2008 recession, things look like they’re playing out over a bit longer timeline in this cycle. When the economy dipped into recession in December 2007, it had been 3 ½ years since the Fed started to raise rates in July 2004. Rosenberg thinks the longer lag this time around is due to fiscal stimulus that was sent out during the height of the COVID-19 pandemic. The amount of cushion the stimulus checks and other aid provided means that people can stomach higher interest rates for a while and consumers can adopt a more “YOLO” (you only live once) attitude about spending. But eventually, this attitude will wane as people realize that the higher rates aren’t a flash in the pan. Even now, the number of Americans falling behind on their credit card debt is starting to rise — 7.2% of credit-card debt is now considered delinquent, up from just over 4% in 2021. In the aftermath of the Great Recession, that number reached as high as about 14%. Auto loan and mortgage delinquencies are also rising. For others, the lagged effect of inflation itself will weigh on consumers and help tip the economy into recession. Tom Essaye, the founder of Sevens Report Research, which counts some of the biggest institutions on Wall Street among it clients, said while inflation on a year-over-year basis has come down significantly, the cumulative price increases we’ve seen since the start of the pandemic will eventually force consumers to cut back on spending. “People get very excited about CPI and say, ‘Hey, CPI went up only 0.1% over the past month and it’s only up 3% over the past year,'” Essaye said. “Well, think about that in practical terms. If I go to buy my kids a bag of Skittles, in 2019 it cost $0.75. Now it costs $1.50. Am I supposed to get excited because next year it costs $1.55?” The wheels of industry slow Piper Sandler’s Kantrowitz pointed to another worry spot: manufacturing. Industrial production, a measure of just how much stuff is coming out of US factories, is starting to trend downward. And surveys of manufacturing executives, like the Institute for Supply Management’s Purchasing Managers Index, show that there’s widespread worry across the industry. Even as the sector has taken a hit, rate hikes are still working their way into manufacturing data. A Granger causality test, which establishes the highest point of correlation between two datasets, showed that it usually takes about 18 months for rate hikes to fully show up in manufacturing data. That means more downside is likely ahead. While manufacturing is just one portion of the US economy, experts say that it’s important to watch because it’s a reflection of consumer demand, and therefore, a thermometer for the broader economy. Another lagged effect of the rate hikes is the impact of tighter lending standards: Even if consumers and businesses are interested in taking out loans, banks have to be willing to give them. According to the Fed’s Senior Loan Officer Opinion Survey, more than half of banks are tightening lending standards for businesses, and that’s showing up in the supply of commercial and industrial loans, which have been falling since December. When this happens, it can mean banks are getting more worried about borrowers’ ability to pay back the loans amid economic uncertainty. Businesses use these loans to grow and to pay employees, meaning a drop in loan issuances weighs on employment and business growth. But Kantrowitz and Rosenberg aren’t the only ones that think policy lags are still playing out. Rosenberg pointed to statements from the Fed chair Jerome Powell at a July press conference: “We have covered a lot of ground, and the full effects of our tightening have yet to be felt.” Lagging realization for investors Of course, there have been times when the Fed has hiked interest rates and not caused a recession. But these instances have been anomalous — 80% of Fed hiking cycles since World War II have resulted in a recession. Hardly an encouraging track record. There is a key differentiating factor, Rosenberg said, that will indicate whether the economy is on the path to a true soft landing or will end up in a recession: the interest rates on different kinds of Treasurys. The Treasury yield curve measures the different interest rates that are paid out on various bonds issued by the US government. Usually, the interest rate on short-dated Treasuries — bonds that pay investors in less than a year — are lower than yields on far-out bonds like the 10-year Treasury. But when that flips and interest rates on short-term Treasurys are higher than their long-term cousins — known as a yield-curve inversion — is a sure sign of a recession, Rosenberg said. That’s because it’s a sign that investors are worried about the economy’s stability over the next few months and are seeking safety in long-term bonds. The yield and curve has been inverted since the end of last year. Since the 1960s, the indicator has a perfect track record of preceding recessions. If a recession does come, investors are likely in for a tough period ahead. As Rosenberg put it, “the stock market is priced for perfection.” And there are many indications that this is true. Sentiment indicators and valuation measures currently show that investors are expecting continued growth ahead. Kantrowitz pointed out that this year’s rally is one of the sharpest over the past 25 years, but it’s detached from fundamentals. For example, the market is soaring despite forward-earnings expectations being negative and manufacturing remaining in contraction territory. It’s the same story every time, both Kantrowitz and Rosenberg say: Investors are bad at pricing in a recession before it unfolds. How much stocks fall in a recessionary scenario probably depends on the depth of the downturn. Doll, for instance, only sees a mild recession ahead, and therefore sees the S&P 500 likely falling as much as another 13%. But in the past 13 recessions, the S&P 500 has dropped an average of 32%, as the Royal Bank of Canada noted. Based on the current strength of the market, a recent summer swoon notwithstanding, most investors assume that the optimists are right: Inflation is going to stay low, the labor market will hold up, and the effects of the interest-rate hikes are in the rearview mirror. But when markets get complacent, Kantrowitz said, “historically, people have gotten in trouble every single time.”

High debt crushes the economy

Jordan Cohen and Dominik Lett, CATO, 2023, Congress Should Worry about Biden’s Emergency Spending Request, https://www.cato.org/blog/congress-should-worry-about-bidens-emergency-spending-request

High and rising national debt suppresses private investment, reduces incomes, and increases risk of a sudden fiscal crisis. Excessive federal debt weakens the economy, which undermines the foundation of America’s military strength. If Congress agrees with President Biden that Ukraine, disaster relief, and border security merits additional funding, it should fund them through regular appropriations and by staying within established spending limits.

Deficit spending non-unique

Caitlyn Shelton, 8-21, 23, https://www.newsnationnow.com/world/russia-at-war/rep-crane-on-ukraine-aid-i-think-we-need-to-pull-back/,

“We’re $33 trillion in debt right now. We’re going to be $36 trillion at least in debt by January 2025.

The American people know that,” Crane said. “They know that there’s one standard for them on their level of fiscal responsibility. They’re not allowed to do that. Why is the U.S. government allowed to continually spend money it doesn’t have?”

No inflation now

Jennifer Sor, 8-19, 23, Wharton professor Jeremy Siegel says the US won’t spiral into a new bout of inflation even as economy stays hot, https://www.businessinsider.com/jeremy-siegel-economy-inflation-spiral-fed-rates-powell-productivity-growth-2023-8

Wharton finance professor Jeremy Siegel said he wasn’t worried about inflation rebounding, despite the signs that the US economy has stayed resilient amid aggressive Fed tightening over the past year. GDP is expected to grow 5.8% over the third quarter, according to an estimate from the Atlanta Fed. Meanwhile, job growth and wage growth remain strong, with the US adding 187,000 payrolls and hourly earnings up 4.4% year over year in July. But the recent statistics are a vast improvement from last year, when the economy was hiring nearly 5 million new workers and GDP grew less than 1%. That was a reflection of poor productivity in the economy, Siegel said – a trend that has since turned around: “It was the worst productivity performance in over 70 years. This year we are hiring at less than half the pace and we have two to three times the level of GDP growth. Why is that? One of the biggest bounce-backs in productivity I have ever seen,” he told CNBC on Friday. “And that’s saving Jay Powell. That’s why we can have this tremendous GDP growth and still have the disinflationary trend.” While the latest Consumer Price Index showed inflation ticked up to 3.2% in July, the rate has fallen sharply from the 9.1% peak in June 2022.

No inflation now

Jennifer Sor, 8-19, 23, Wharton professor Jeremy Siegel says the US won’t spiral into a new bout of inflation even as economy stays hot, https://www.businessinsider.com/jeremy-siegel-economy-inflation-spiral-fed-rates-powell-productivity-growth-2023-8

Wharton finance professor Jeremy Siegel said he wasn’t worried about inflation rebounding, despite the signs that the US economy has stayed resilient amid aggressive Fed tightening over the past year. GDP is expected to grow 5.8% over the third quarter, according to an estimate from the Atlanta Fed. Meanwhile, job growth and wage growth remain strong, with the US adding 187,000 payrolls and hourly earnings up 4.4% year over year in July. But the recent statistics are a vast improvement from last year, when the economy was hiring nearly 5 million new workers and GDP grew less than 1%. That was a reflection of poor productivity in the economy, Siegel said – a trend that has since turned around: “It was the worst productivity performance in over 70 years. This year we are hiring at less than half the pace and we have two to three times the level of GDP growth. Why is that? One of the biggest bounce-backs in productivity I have ever seen,” he told CNBC on Friday. “And that’s saving Jay Powell. That’s why we can have this tremendous GDP growth and still have the disinflationary trend.” While the latest Consumer Price Index showed inflation ticked up to 3.2% in July, the rate has fallen sharply from the 9.1% peak in June 2022.

China will drag-down the global economy

Phil Rosen Aug 19, 2023, China’s economy is flailing. Here’s how its problems could spill into global markets., https://www.businessinsider.com/china-economy-global-markets-xi-deflation-property-housing-evergrande-developers-2023-8, Business Insider

China’s economy is facing headwinds ranging from an unstable property market to weak consumer demand. Experts told Insider that a worsening scenario in China bodes poorly for global markets and other economies like the US. Both Janet Yellen and Joe Biden have recently warned of China’s spillover risks. China has built itself into a world power with a massive impact on the global economy through decades of steady growth, huge trade volumes, and an expanding, productive population. After President Xi Jinping lifted Beijing’s extreme “zero-COVID” policies in December, experts expected that Chinese demand and business would come roaring back so strong that the entire world economy would feel the effects of its reopening. But the opposite has happened, and experts say the repercussions of China’s economic stumbles could reverberate well beyond its borders. The world’s second-largest economy looks strikingly weak coming out of the pandemic, and its troubles have ballooned to such an extent this month that Treasury Secretary Janet Yellen warned of China’s risks to the US the same week President Joe Biden likened it to a “ticking time bomb.” Chinese officials have warned experts against painting the economy in a negative light, though the data paint a clear picture of an economy in trouble. Tuesday data — which came less than an hour after a surprise rate cut from China’s central bank — showed China’s industrial production, retail sales, and exports all performed weaker than expected, and the report omitted youth unemployment, which had hit a record high of 21.3% in the prior month. All this is unfolding against a backdrop of an unstable property sector, headlined most recently by a bankruptcy filing by Evergrande, the most heavily indebted property developer in the world, and Country Garden Holdings’ two missed coupon payments on its bonds. Here’s what all this could mean for the rest of the world’s markets. Collapsing trade Given its major role in global trade, none of these troubles are China’s alone. Alfredo Montufar-Helu, the head of the China Center at the Conference Board, told Insider that the country still accounts for about 30% of global growth, and any domestic slippage will have far-reaching implications on markets around the world. “Unlike during the Great Financial Crisis, China will not drive the global economic recovery in the aftermath of the COVID-19 pandemic,” he said. “As its economy continues facing downward pressures, its growth momentum might slow down further, in turn exacerbating the already significant pressures that the global economy is facing.”

One way this is already being felt is in the softening of Chinese demand, which has led to a sharp drop in trade. This week’s data showed China’s exports have declined for three consecutive months, and imports have slipped for five months. On the plus side, lower demand dampens inflationary pressures, which could potentially make life easier for the Federal Reserve and other central banks as they continue to battle high prices in their economies. Yet, this can have a negative impact on producers and exporters in the US and other markets, Montufar-Helu said, and replacing the missing demand may not be easy. Keith Hartley, chief executive of supply-chain analytics firm LevaData, noted that China consumes a significant portion of the world’s commodities, and softer demand there means an inventory glut for US companies and shrinking profits, as well as less business for countries that rely on commodity exports. “For the US, sectors like agriculture and manufacturing reliant on exporting to China could see reduced sales, potentially causing economic slowdown and job losses,” Hartley told Insider. While a prolonged slump for Chinese exports could weigh on nations’ manufacturing industries and disrupt supply chains, he said it also opens the door for other countries like the US to diversify their sourcing strategies, and begin relocating manufacturing outside of China. Exporting deflation American companies with ties to China are already feeling the effects of the slowdown. A handful of chemical and manufacturing companies have reported lower second-quarter sales, and some have pulled back their outlook for the rest of the year, as Insider’s Noah Sheidlower wrote Thursday. As a result of widespread declines in China’s consumer prices, many Americans could see pricier cars and personal-care products, and some companies could lose revenue and resort to layoffs. “One of the biggest risks is that China starts exporting deflation to the world, hurting corporate profits in the U.S. and around the world,” Dexter Roberts, a senior fellow at the Atlantic Council, told Insider. “A Chinese slump would hurt both the many American companies that derive a significant portion of their revenues from China, and those who may not be directly invested or sell to China, but would be hurt by global deflation.” Housing crash Slumping domestic demand in China and weak consumer spending largely stems from risks in the domestic property market, but there are spillover risks from that sector as well. The Conference Board’s Montufar-Helu said housing assets are estimated to account for around 70% of Chinese households’ wealth, and the uncertainty is making people hold onto their cash rather than spend it. Property market tumult is weighing on China’s overall growth, he said, by crimping industrial output, discouraging spending, eroding government revenue levels, and increasing risks across the financial sector. “The real estate boom over the past decade attracted considerable amounts of foreign capital, including from the US,” Montufar-Helu said. “Chinese developers are facing significant liquidity constraints, and so the likelihood of them defaulting on US-denominated bonds is growing.” And as the housing crisis deepens, it will become harder to China to right the ship, creating a lasting drag on future global growth. David Roche, president and global strategist at Independent Strategy, said in a CNBC interview this week that the Chinese economic model is now “washed up on the beach” with little chance of a rebound.

 

High debt crushes the economy

Jordan Cohen and Dominik Lett, CATO, 2023, Congress Should Worry about Biden’s Emergency Spending Request, https://www.cato.org/blog/congress-should-worry-about-bidens-emergency-spending-request

High and rising national debt suppresses private investment, reduces incomes, and increases risk of a sudden fiscal crisis. Excessive federal debt weakens the economy, which undermines the foundation of America’s military strength. If Congress agrees with President Biden that Ukraine, disaster relief, and border security merits additional funding, it should fund them through regular appropriations and by staying within established spending limits.

Economy on the brink, soft landing not inevitable

Javier David, 8-14, 23,  Why “we’re not out of the woods” as banks pull back on lending, https://www.axios.com/2023/08/14/recession-2023-interest-rates-us-banks

There’s good, bad — and potentially worse news on the horizon for the resilient economy. Why it matters: Most Wall Street economists don’t think a downturn is in the offing for 2023. Yet for some, next year is already starting to look precarious. Driving the news: The recession the U.S. has braced for since late 2022 has yet to rear its head. Barring unforeseen and really dramatic developments, the economy should continue expanding through the third quarter at least. The bad news is that the Federal Reserve’s tightening campaign is starting to bite, and may even have further to run. As Axios’ Courtenay Brown wrote in Monday’s edition of Macro, banks are starting to constrict lending (especially in the beleaguered commercial real estate space). Quick take: Despite visions of a soft landing dancing in the heads of most investors and helping to prop up the stock market, the dwindling availability of credit — combined with higher interest rates — suggests the economy may not be able to defy gravity for much longer. Zoom in: The possibly worse news is that there’s no relief in sight for non-bulge bracket banks that are the lifeblood of U.S. commercial lending. In a research note on Monday, Morgan Stanley harked back to Moody’s surprise downgrade of a clutch of small and medium-sized banks as a “reminder that the headwinds of increasing capital requirements, higher cost of funding, and rising loan losses continue to challenge the business models of the regional banking sector.” What they’re saying: “While the total volume of debt downgraded thus far is relatively small at around $10 billion, Moody’s put six banks on review for possible downgrade and changed the outlooks of 11 banks to negative from stable,” the bank’s analysts wrote. “Thus, the volume of bank debt facing the prospect of a downgrade is much higher — well over $100 billion.” What others are saying: At least a few market observers warn the recent run of strong earnings and data — and by extension the market’s reaction to it — could be misleading. “The word recession has kind of been canceled, but we said a year ago that forces are in place to create a recession. That’s still in the cards,” Dave Donabedian, chief investment officer of CIBC Private Wealth Management, tells Axios in an interview. Better-than-expected earnings, private payrolls and retail sales are inherently backward looking, and “have no predictive value of the future. Recent leading indicators point to a significant weakening in the economy,” he adds. “Moody’s downgrade was a symptom of the problem…for interest rate reasons but also more secular reasons, we’re going to go through a rough patch.” The bottom line: Soft landing expectations notwithstanding, “we are not out of the woods yet,” warns JPMorgan Chase’s Marko Kolanovic in a note. “…We see a significant risk that the market narrative could shift again from ‘soft landing’ towards a ‘more extended tightening cycle’ which by itself would raise the prospect of a deep and more synchronized recession in 2024, again raising downside risk for risk assets.”

Inflation decreasing now

JOSH BOAK and PAUL WISEMAN, August 13, 2023, Yahoo News, https://finance.yahoo.com/news/yes-inflation-down-no-inflation-111547060.html

WASHINGTON (AP) — Even President Joe Biden has some regrets about the name of the Inflation Reduction Act: As the giant law turns 1 on Wednesday, it’s increasingly clear that immediately curbing prices wasn’t the point. While price increases have cooled over the past year — the inflation rate has dropped from 9% to 3.2% — most economists say little to none of the drop came from the law. “I can’t think of any mechanism by which it would have brought down inflation to date,” said Harvard University economist Jason Furman, who added that the law could eventually help to lower electricity bills. Alex Arnon, an economic and budget analyst for the University of Pennsylvania’s Penn Wharton Budget Model, offers a similar assessment. “We can say with pretty strong confidence that it was mostly other factors that have brought inflation down,’’ he said. “The IRA has just not been a significant factor.’’ That shouldn’t come as a surprise. When the Inflation Reduction Act was proposed, the Congressional Budget Office said its impact on inflation would be “negligible.” So why the name? It may ultimately help to hold down prices in the future — and it fit the politics of the moment. The law was proposed shortly after the American public learned that consumer prices were climbing upward at the fastest pace in four decades. Democratic Sen. Joe Manchin of West Virginia and Senate Majority Leader Chuck Schumer of New York had been holding private talks about Biden’s agenda and put forth the name Inflation Reduction Act once they had a deal. Biden pledged at the time that it would “reduce inflationary pressures.”

Overall, inflation is declining

Quinlin, 8-13, 23, https://kansasreflector.com/2023/08/13/consumers-seeing-relief-in-some-food-prices-as-inflation-continues-to-slow/, Kansas Reflector, Consumers seeing relief in some food prices as inflation continues to slow

Consumers are getting some relief from higher prices as core inflation, which excludes food and energy, continues to show signs of cooling — an encouraging sign for the U.S. economy, according to economists. The Department of Labor’s report on Thursday showed the consumer price index rose 0.2% in July, in line with expectations, and 3.2% in the past year compared to 3% in June. Despite that slight uptick, economists say that it’s still good news for the economy overall and for consumers. This is the second month core inflation has reached pre-pandemic levels, according to an analysis of Department of Labor data by the Roosevelt Institute. “We now have two straight months of low, honestly, quite normal levels of inflation,” Kitty Richards, acting executive director of the progressive think tank Groundwork Collaborative, told States Newsroom. “That’s a huge drop from last summer’s peak. And that is something that we should be celebrating, especially given that it has happened in the context of growing real wages and a job market that is still really delivering for American workers. I’m really glad to see that in the inflation report.” Food prices increased 0.2% from June to July and 4.9% from July 2022. However, egg prices, which families have been complaining about at the checkout line, are falling. Milk prices have also continued to decline. Frozen fish and other seafood prices also fell in July after increasing a bit in June. David Ortega, a food economist who is an associate professor at Michigan State University, said food price inflation is starting to moderate. “A 3.6% increase in grocery prices is a welcome relief from what we saw last year. We were talking about double-digit increases, year-over-year for grocery prices,” he said. “They peaked in August [of 2022]. There’s signs that things are moderating and, and they’re definitely improving.” But it’s still important to consider that these changes, while promising, are not necessarily affecting the average

American’s experience of prices at the supermarket in a big way, he cautioned. “If you talk to consumers, people  are like, ‘Things are still expensive at the grocery store.’ And that’s correct because inflation is the rate of increase in prices over a period of time,” he said. “Just because the rate of increase starts to come down, it doesn’t mean that prices are coming down or that things are necessarily getting cheaper. It just means that they’re not increasing in price as quickly.” Some factors still adding inflationary pressures include climate change and Russia’s war in Ukraine, Ortega said. “We’ve seen some of those factors start to improve and in some cases, not really be much of a problem like in the case of bird flu for egg prices. But we still have some factors at play that are still adding inflationary pressures ….,” he said. “That’s why inflation has been very persistent. And there’s also a demand story that we’ve seen, especially in the data that we have for last year, that consumer spending on food has been pretty strong.”

Oil prices will remain stable now

Robertson, 8-11, 23, https://thehill.com/business/4149782-iea-lowers-forecast-for-growth-in-oil-demand/, The Hill, IEA lowers forecast for growth in oil demand Oil use is expected to slow its growth in 2024, according to a new report from the International Energy Agency (IEA)

The world is expected to use about 102.2 million barrels of oil per day as of this year, a 2.2 percent increase from 2022 figures. That growth is now expected to slow slightly into 2024, falling to about a 1 percent increase, the agency noted. “With the post-pandemic rebound running out of steam, and as lacklustre economic conditions, tighter efficiency standards and new electric vehicles weigh on use, growth is forecast to slow to 1 mb/d in 2024,” the report states. This year, a reduction in Saudi oil production has helped raise prices, the IEA said. The U.S. has attempted to raise output in an attempt to offset rising prices, and refineries have also increased production. Gasoline is $3.84 per gallon on average nationally, according to AAA. That’s a 30 cent increase from the same time last month. However, prices are still below last summer’s highs. “Global oil prices moved steadily higher during July and into early August, reflecting a market tightening long projected by this Report,” the IEA said. “Deepening OPEC+ supply cuts have collided with improved macroeconomic sentiment and all-time high world oil demand.” The weather has also helped raise prices, as high temperatures force some refineries to slow their production. That’s forcing oil producers and refineries to dip into their inventories, the report states. Additional oil price rises are expected into next year as OPEC+ nations including Saudi Arabia continue to cut their output, according to the agency.

Economic downturn structurally inevitable

EL-Erian, 11-22, 22, MOHAMED A. EL-ERIAN is President of Queens’ College at Cambridge University. He also serves as Professor of Practice at the Wharton School, Senior Global Fellow at the Lauder Institute, and an adviser to Allianz and Gramercy Funds Management, Not Just Another Recession Why the Global Economy May Never Be the Same, https://www.foreignaffairs.com/world/not-just-another-recession-global-economy

To say that the last few years have been economically turbulent would be a colossal understatement. Inflation has surged to its highest level in decades, and a combination of geopolitical tensions, supply chain disruptions, and rising interest rates now threatens to plunge the global economy into recession. Yet for the most part, economists and financial analysts have treated these developments as outgrowths of the normal business cycle. From the U.S. Federal Reserve’s initial misjudgment that inflation would be “transitory” to the current consensus that a probable U.S. recession will be “short and shallow,” there has been a strong tendency to see economic challenges as both temporary and quickly reversible. But rather than one more turn of the economic wheel, the world may be experiencing major structural and secular changes that will outlast the current business cycle. Three new trends in particular hint at such a transformation and are likely to play an important role in shaping economic outcomes over the next few years: the shift from insufficient demand to insufficient supply as a major multi-year drag on growth, the end of boundless liquidity from central banks, and the increasing fragility of financial markets. These shifts help to explain many of the unusual economic developments of the last few years, and they are likely to drive even more uncertainty in the future as shocks grow more frequent and more violent. These changes will affect individuals, companies, and governments—economically, socially, and politically. And until analysts wake up to the probability that these trends will outlast the next business cycle, the economic hardship they cause is likely to significantly outweigh the opportunities they create. Recessions and bouts of inflation come and go, but the last few years have seen a series of highly unlikely, if not unthinkable, global economic and financial developments. The United States, once a champion of free trade, became the most protectionist advanced economy. The United Kingdom suddenly devolved into something resembling a struggling developing country after an ill-fated mini-budget weakened the currency, pushed bond yields skyward, triggered a “negative watch” designation from ratings agencies, and forced Prime Minister Liz Truss to resign. Borrowing costs increased sharply as interest rates on more than a third of global bonds went negative (creating an abnormal situation in which creditors pay debtors). Russia’s war in Ukraine paralyzed the G20, accelerating what had previously been a gradual weakening of the institution. And some Western nations have weaponized the international payments system that is the backbone of the global economy in an effort to punish Moscow. Add to this list of low-probability events China’s rapid recentralization under Xi Jinping and its decoupling from the United States, the strengthening of autocracies around the world, and the polarization and even fragmentation of many liberal democracies. Climate change, demographic shifts, and the gradual migration of economic power from west to east were more foreseeable but have nonetheless complicated the global economic environment. The inclination of many analysts has been to seek bespoke explanations for each surprising development. But there are important common threads, especially among the economic and financial events, including the failure to generate rapid, inclusive, and sustainable growth; the overreliance of policymakers on a narrow toolkit that over time has created more problems than it has solved; and the absence of common action to address shared global problems. These commonalities, in turn, mostly (although not entirely) boil down to the three transformational changes occurring in the global economy and finance.

The Fed is out of stabilizers/tools to prevent economic downturns

EL-Erian, 11-22, 22, MOHAMED A. EL-ERIAN is President of Queens’ College at Cambridge University. He also serves as Professor of Practice at the Wharton School, Senior Global Fellow at the Lauder Institute, and an adviser to Allianz and Gramercy Funds Management, Not Just Another Recession Why the Global Economy May Never Be the Same, https://www.foreignaffairs.com/world/not-just-another-recession-global-economy

But the longer central banks extended what was meant to be a time-limited intervention—buying bonds for cash and keeping interest rates artificially low—the more collateral damage they caused. Liquidity-charged financial markets decoupled from the real economy, which reaped only limited benefits from these policies. whole The rich, who own the vast majority of assets, became richer, and markets became conditioned to think of central banks as their best friends, always there to curtail market volatility. Eventually, markets started to react negatively to even hints of a reduction in central bank support, effectively holding central banks hostage and preventing them from ensuring the health of the economy as a. All this changed with the surge in inflation that began in the first half of 2021. Initially misdiagnosing the problem as transitory, the Fed made the mistake of enabling mainly energy and food price hikes to explode into a broad-based cost-of-living phenomenon. Despite mounting evidence that inflation would not go away on its own, the Fed continued to pump liquidity into the economy until March 2022, when it finally began raising interest rates—and only modestly at first. But by then inflation had surged above 7 percent and the Fed had backed itself into a corner. As a result, it was forced to pivot to a series of much steeper rate hikes, including a record four successive increases of 0.75 percentage points between June and November. Markets recognized that that the Fed was scrambling make up for lost time and started worrying that it would keep rates higher for longer than would be good for the economy. The result was financial market volatility that, if sustained, could threaten the functioning of global financial markets and further damage the economy.

Central banks can no longer stop downturns

EL-Erian, 11-22, 22, MOHAMED A. EL-ERIAN is President of Queens’ College at Cambridge University. He also serves as Professor of Practice at the Wharton School, Senior Global Fellow at the Lauder Institute, and an adviser to Allianz and Gramercy Funds Management, Not Just Another Recession Why the Global Economy May Never Be the Same, https://www.foreignaffairs.com/world/not-just-another-recession-global-economy

The fragility of the financial system also complicates the job of central banks. Instead of facing their normal dilemma—how to reduce inflation without harming economic growth and employment—the Fed now faces a trilemma: how to reduce inflation, protect growth and jobs, and ensure financial stability. There is no easy way to do all three, especially with inflation so high.

Economy on the brink, stimulating it more risks more inflation and triggering a recession

Summer, 8-27, 22, Scott Sumner is the Ralph G. Hawtrey Chair of Monetary Policy with the Mercatus Center at George Mason University and a professor emeritus at Bentley University, The Hill, Why is it so difficult to achieve a soft economic landing?

Larry Summers is worried that the economy faces a hard landing as the Federal Reserve attempts to bring inflation under control. The former Treasury secretary recently said, “My worst fear would be that the Fed will continue to be suggesting that it can have it all in terms of low inflation, low unemployment and a healthy economy.” Many other pundits also warn that the economy is on the edge of recession. While a recession is not inevitable, history shows that soft landings are difficult to achieve. Let’s look at some background before getting into the specifics of our situation. During an economic recovery, the unemployment rate gradually declines. A useful definition of a soft landing would be a period of at least three years of economic growth with low inflation even after the labor market has full recovered from recession. Surprisingly, there is no evidence that the United States has ever achieved a soft landing, at least as far back as we have economic data. In the United States, a recession almost always occurs within two years of the unemployment rate recovering from the previous recession. Instead of leveling off at “full employment,” unemployment almost always begins rising sharply soon after reaching its natural rate. The closest that the United States has come to a soft landing was 1966-69, when unemployment leveled off in the 3.5 percent to 4 percent range for almost four years. Unfortunately, inflation took off during that period. An extended period of both low unemployment and stable prices seems as elusive as a unicorn. Oddly, this is not the case in other countries, where soft landings are not particularly unusual. Japan has had extended periods of very low unemployment and low inflation. A notable example of a soft landing occurred in Britain during 2001-08, when unemployment stayed in the 4.7 percent to 5.5 percent range for seven years and inflation remained relatively low. Australia had no official recessions between 1991 and 2020. In some respects, the challenge facing the Fed is even greater than during the past few business cycles, as for the first time since the 1980s it allowed nominal spending growth for the overall economy to dramatically exceed the rate consistent with its 2 percent inflation target. Over the past two years, nominal GDP has grown at roughly 13 percent per year. During the first year of recovery from the COVID-19 shutdown, fast growth in nominal spending was justified by the need to recover from a deep slump. But in late 2021, spending began overshooting the previous trend line, causing inflation to rise dramatically. To get inflation back to the 2 percent target, nominal spending growth must slow to less than 4 percent per year, which would account for the economy’s trend rate of real GDP growth, which has fallen below 2 percent. But if the Fed were to immediately slow spending growth to such a rate, the economy would almost certainly fall into recession. Nominal wages are still rising rapidly, and if business cannot pass along those wage increases in the form of higher prices, then businesses would sharply reduce employment The best way to avoid this dilemma would have been to keep the economy from overheating in the first place. That might have been done if the Fed had interpreted its “flexible average inflation target” (FAIT) of 2 percent in a symmetrical way — promising to make up for both inflation undershoots and overshoots. Unfortunately, it ended up with an asymmetric FAIT policy, only committing to make up for inflation undershoots. Thus, it is now too late to avoid the need to attempt a highly difficult soft landing. If the economy were an airplane, it is coming in much too fast, leaving little margin for error. The Fed’s best hope is to gradually slow nominal GDP growth, perhaps to a 5 percent rate over the next 12 months, and a 4 percent rate over the subsequent year. If we were to escape with a mini-recession (roughly 5 percent unemployment) and 2 percent inflation by 2024, it might not count as a soft landing, but by historical standards we will have escaped high inflation with relatively little damage. Unfortunately, not only has the United States never had a true soft landing; we’ve never had a mini-recession. When unemployment begins rising during an economic slowdown, it always increases by at least 2 full percentage points. In contrast, mini-recessions often occur in foreign countries. The Fed needs to do a better job of steering a course between too much stimulus and too little.

Economic growth foundation of national power

Brad Bannon, 3-3, 22, The Hll, , A vibrant economy guarantees US national security during troubled and turbulent times, https://thehill.com/opinion/white-house/596659-a-vibrant-economy-guarantees-us-national-security-during-troubled-and, Brad Bannon is a Democratic pollster and CEO of Bannon Communications Research. His podcast, “Deadline D.C. with Brad Bannon,” airs on Periscope TV and the Progressive Voices Network.

President Biden’s first State of the Union address was a celebration of America’s and Europe’s steely resolve to resist Russian aggression — and a eulogy for his big and bold Build Back Better plan to fundamentally reshape and reinvigorate an ailing economy. On Tuesday, the president repurposed elements of Build Back Better into a new plan which he called Building a Better America. The new plan is a solid step to move our economy forward but it’s not nearly as transformative or as comprehensive as its predecessor. It’s America’s loss and a victory for China, which is rapidly modernizing its economy and is fighting the United States for international dominance. Biden could have devoted the entire State of the Union address to tout his remarkable record of accomplishment in the first 13 months of his administration. The economy is growing, and pandemic is receding. He would have had more time to focus on his plans to combat climate change and win the war against inflation. But Russian President Vladimir Putin dropped the hammer on Ukraine and dampened Biden’s ambitious plans to modernize the economy. Presidential candidates run to be the chief executive of the United States of America but often end up governing as commander in chief of the armed forces. Presidents have a finite opportunity at the beginning of their terms to advance their domestic agenda. Then reality rears its ugly head. The presidential honeymoon ends, Congress asserts itself and foreign powers flex their military muscles. That why presidents rush to get as much done as quickly as they can. In the first year of his presidency, Biden convinced millions of Americans to get vaccinated and persuaded members of Congress to support his lifesaving COVID-19 relief plan, the American Rescue Act. The president’s efforts saved the nation from the ravages of the deadly pandemic. The economy is on the upswing with the passage of the bipartisan law the Infrastructure Investment and Jobs Act, as well as the creation of almost 7 million jobs. The Russian threat looms in Europe but there’s still a lot more to do here to improve the health, wealth and wellbeing of the American people. The president’s transformative Build Back Better bill was already on life support and Putin just pulled the plug. The demise of the president’s ambitious initiative is a blow to reinvigorating the American economy and preparing it to grapple with challenges that face the United States. Critics wrongly framed the proposal as a massive social spending bill but, Build Back Better was financed by tax increases on wealthy Americans and corporate America to transform the economy to make it more competitive in the cutthroat international marketplace. The president’s proposal would have created green energy jobs that would have fought the ravages of global climate change. The Child Tax Credit would have helped integrate valuable employees back into a depleted workforce. Universal pre-school education and free two-year college tuition would have produced more skilled and highly trained employees better equipped to compete with workers in other nations. The reversal of former President Trump’s 2017 tax law would have put money back into the pockets of hard-working middle-class families and help them cope with price gouging by big businesses. Congressional spending battles are fights between guns and butter for budgetary supremacy. Russian aggression in Eastern Europe and Republican obstruction to the president’s ambitious domestic agenda may tilt the balance of power toward military spending. Overnight Defense & National Security — US tries to turn down the… Trump border wall breached thousands of times by smugglers: report But history demonstrates that economic strength — not military might — makes or breaks world powers. Challenges remain here in the United States while the nation turns its eyes towards Ukraine. Global climate change is as much a threat to the security of the U.S. and the world as Russian aggression. Our outmoded system of physical and electronic infrastructure is an open invitation to China to extend its economic hegemony over the world at our expense. Americans must keep their eyes on the prize when international tensions intensify. The payoff is a vibrant economy that guarantees our security during troubled and turbulent times.

Wage increases boost consumer spending

Sarah Chaney Camban, 11-24, 21, WSJ, U.S. Recovery Accelerates on Spending, Labor Market Growth, https://www.wsj.com/articles/consumer-spending-personal-income-inflation-october-2021-11637710533?mod=hp_lead_pos2

Wage increases will be a key source of spending power for consumers as they run through savings accumulated from multiple rounds of government stimulus. Americans were saving at an annualized rate of $1.322 trillion in October, compared with $5.764 trillion in March, when a fresh round of stimulus started reaching bank accounts. “We’re seeing the growth baton being passed from the public sector to the private sector,” said Mr. Daco of Oxford Economics. The personal-saving rate, which is saving as a percentage of after-tax income, was 7.3% in October, in line with pre-pandemic levels. The booming job market has been a boon for Caleb Waack’s career. The 28-year-old starts a new job in data engineering for an online mattress firm next Monday, his third since the pandemic began. Mr. Waack said he seized on extra time from working remotely to study up on programming, helping him transition from automotive engineering to consumer goods and, ultimately, to his chosen field of data science. He said he received an offer for his new job within a week of applying, compared with a five-week turnaround time for the role he took in mid-2020. “The labor market is scorching hot,” said Mr. Waack, who lives in De Pere, Wis. “The salary increase is—it’s significant, definitely higher than inflation. It’s an employees’ market, right?” Covid-19 is still disrupting the economy and poses a risk to the outlook. Virus cases have risen this month, and some public-health experts warn that cases could continue to climb as people gather indoors during the winter.