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The economy is strong, inflation controlled
JP Morgan, 4-8, 24, https://www.jpmorgan.com/insights/outlook/economic-outlook/jobs-report-march-2024, March 2024 jobs report: 303,000 jobs added, marking an acceleration
The March jobs report confirms the labor market remains resilient, despite high interest rates and slowing economic indicators. The U.S. labor market added 303,000 jobs in March, representing an acceleration in the pace of hiring. January’s nonfarm payroll gains were upwardly revised to 256,000, while February’s nonfarm payroll gains were revised down to 270,000.1 March’s nonfarm payroll gains bring the three-month average employment gain to a 12-month high of 276,000 jobs. That pace is likely not sufficient to bring inflation down to the Fed’s 2% target. However, indicators suggest that the pace of job growth will slow and help lower inflation in the upcoming quarters.
Recession now
Jennifer Sor, 4-4, 24, Business Insider, The US economy is flashing a recession warning that has only been wrong once in the last century, top economist says, https://www.businessinsider.com/recession-outlook-economy-hard-landing-job-market-layoffs-growth-warning-2024-4
The US economy is flashing a classic recession warning that has only shown a false positive once in the last century, according to top economist Lakshman Achuthan. The business-cycle expert and cofounder of the Economic Cycle Research Institute pointed to troubling signs of weakness in the US, with warning signs of a downturn cropping up in multiple areas of the economy. The ECRI’s Leading Economic Index — the economic indicator with a near-perfect track record — has started to decline over the last year, Achuthan said, speaking in a webcast with Rosenberg Research on Wednesday. The Fed needs to ‘kill the zombie’ with a high-rate-induced recession before investors should jump in to buy more stocks, strategist says Recession odds are ‘very high’ as economy looks poised to see an unemployment wave and plunging consumer spending, chief economist says Nearly everyone has given up on their recession call, and that makes the outlook ‘dangerously reminiscent’ of 2007, SocGen says The decline in the index has started to level out in recent months. Still, a fall in the index has been followed by a recession every time over the last 120 years, he noted, with the exception of when the index declined after World War II. Advertisement “That, while is not a guarantee of a recession, it certainly is an indication that there’s a lot of vulnerable to shocks,” Achuthan warned. “More often than not, it really speaks to cyclical vulnerability.” That’s compounded by other signs of an increasingly sluggish US economy. GDP is set to slow dramatically over the first quarter, with the Atlanta Fed forecasting expansion of just 2.5% over the most recent three-month period. Meanwhile, the US Coincident Index, a growth measure that includes GDP, jobs, and retail sales data, has trended near 0% over the last two years, plunging from a peak of around 20% in 2021. Hiring conditions are also starting to weaken dramatically. Though jobs growth looks strong on the surface, the unemployment rate has ticked steadily higher, notching its highest level in 2 years in February. Meanwhile, the ECRI’s Cyclical Labor Conditions index, a measure of “cyclical labor impulses” in the economy, has plunged nearly 50% over the past few years. That steep decline mirrors falls seen prior to the 2001, 2008, and pandemic-era recession, historical data from the ECRI shows. Hiring strength seems to lie in non-discretionary areas of the market — which typically occurs before a recession, Achuthan said, as consumers prioritize needs over wants. Job growth in education and health rose around 4% last year, though job growth in every other sector trended near 0%, ECRI data shows. “Without that, probably would have been in recession,” Achuthan said of non-discretionary hiring growth. According to Achuthan, those warning signs point to a “tug-of-war” in the economy, with growth in the US being pulled back and forth between cyclical weakness and external support, such as stimulus spending and labor hoarding during the pandemic. If those supports fade, that could “spell some trouble,” he warned. Other economists have sounded the alarm of a coming downturn, especially as the inflation could remain sticky and the Fed risks keeping rates higher for longer. According to top economist David Rosenberg, a recession is four times more likely to happen than an economic expansion, and a downturn with steep job losses could come sometime before the end of the year.
Recession now
Sean Williams, 3-17, 24, Is Wall Street on the Verge of a Crash? The Fed’s Most-Trusted Recession Indicator Weighs In., https://www.msn.com/en-us/money/savingandinvesting/is-wall-street-on-the-verge-of-a-crash-the-fed-s-most-trusted-recession-indicator-weighs-in/ar-BB1k29VG?ocid=hpmsn&cvid=d1ac823318334ec1b357ed7260e3a8dc&ei=14
Every month for more than six decades, the NY Fed’s recession probability tool has analyzed the spread (difference in yield) between the 10-year Treasury bond and three-month Treasury bill (T-bill) to determine how likely it is that a U.S. recession will crop up over the coming 12 months. The vast majority of the time, the Treasury yield curve slopes up and to the right. In other words, Treasury bonds that aren’t set to mature for 30 years will offer higher yields than T-bills that are set to mature in, say, a month or a year. Yields should increase the longer your money is invested in an interest-bearing asset. But as the 10-year/three-month yield spread has shown over the past 65 years, the yield curve doesn’t always behave as planned. Occasionally, the yield curve inverts, which represents an instance where T-bills sport higher yields than Treasury bonds maturing a long time from now. When the yield curve inverts, it’s typically a sign that investors are worried about the near-term outlook for the U.S. economy. Now here’s the quirk: A yield-curve inversion doesn’t guarantee the U.S. economy will dip into a recession. However (and here’s the key “however’), every recession since the end of World War II in September 1945 has been preceded by a yield-curve inversion. It represents something of a warning to investors that the U.S. economy and stock market could be teetering on disaster. As you can see from the data released in recent days by the NY Fed, there’s a 58.31% probability of a recession taking shape by or before February 2025. Although this isn’t the highest recent reading from this predictive tool, it remains one of the highest recession-probability forecasts over the past 42 years. There are two things worth pointing out from the 65 years of reported yield-curve data from the NY Fed. To start with, this predictive tool can be wrong. In October 1966, the likelihood of a U.S. recession taking shape surpassed 40% without a downturn in the U.S. economy materializing. It’s not an infallible forecasting tool. On the other hand, it’s only been wrong one time spanning 65 years and has a perfect track record over the last 58 years. Since October 1966, a recession probability of 32% or above has, without fail, eventually forecast a U.S. recession.
Economy resilient, recessions don’t lead to downturns and the economy rebounds
Sean Williams, 3-17, 24, Is Wall Street on the Verge of a Crash? The Fed’s Most-Trusted Recession Indicator Weighs In., https://www.msn.com/en-us/money/savingandinvesting/is-wall-street-on-the-verge-of-a-crash-the-fed-s-most-trusted-recession-indicator-weighs-in/ar-BB1k29VG?ocid=hpmsn&cvid=d1ac823318334ec1b357ed7260e3a8dc&ei=14
Even though the stock market doesn’t mirror the performance of the U.S. economy, corporate earnings do ebb and flow based on the health of the economy. Historically, two-thirds of the S&P 500’s drawdowns have occurred after, not prior to, a recession being declared by the National Bureau of Economic Research. Put another way, a recession would, indeed, be expected to decisively knock the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite off their respective perches. While a rapid crash may not occur, meaningful downside would be the expectation. Truth be told, the NY Fed’s trusted recession probability tool is just one of a couple of metrics that appears to spell trouble for the U.S. economy and stock market. In particular, M2 money supply is meaningfully contracting for only the fifth time since 1870, and the Conference Board Leading Economic Index (LEI) is working on one of its longest consecutive declines dating back more than 60 years. All signs appear to point to a sizable downturn for the Dow Jones, S&P 500, and Nasdaq Composite. While this may not be the rosiest of near-term forecasts, patience has a way of righting the ship when it comes to investing on Wall Street. For example, in the 78 years since World War II ended, the U.S. economy has navigated its way through a dozen recessions. Only three of these 12 downturns reached 12 months in length, and none surpassed 18 months. Based on what history tells us, recessions are short-lived events. Conversely, periods of economic growth tend to stick around for multiple years. While there are a few instances of short-lived expansions, there are two periods of growth since 1945 that lasted at least a decade. Statistically speaking, it’s a considerably smarter move to bet on the American economy (and its underlying businesses) to grow over time. It’s a similar story on Wall Street. According to analysts at Bespoke Investment Group, there’s a marked disparity between bear and bull markets in the S&P 500. Last June, Bespoke published a dataset that revealed the length of every bear and bull market in the S&P 500 dating back to the start of the Great Depression in September 1929. The 27 S&P 500 bear markets have lasted an average of just 286 calendar days (about 9.5 months), with the longest enduring 630 calendar days in 1973 to 1974. By comparison, the average S&P 500 bull market has lasted for 1,011 calendar days (roughly two years and nine months), with 13 of the 27 bull markets since September 1929 sticking around for a longer number of calendar days than the lengthiest S&P 500 bear market. No matter what the U.S. economy or Wall Street has thrown investors’ way, patience has always paid off. Eventually, stock market corrections and bear markets are cleared away by bull market rallies. Even if 2024 turns out to be a rough year for equities, it could represent a blessing in disguise for opportunistic long-term investors.
Inflation increasing
Jennifer Cox, 3-14, 24, CNBC, This week provided a reminder that inflation isn’t going away anytime soon, https://www.cnbc.com/2024/03/14/this-week-provided-a-reminder-that-inflation-isnt-going-away-anytime-soon.html
From consumer and wholesale prices to longer-term public expectations, reports this week served up multiple reminders this week that inflation isn’t going away anytime soon. Data across the board showed pressures increasing at a faster-than-expected pace, causing concern that inflation could be more durable than policymakers had anticipated. The bad news began Monday when a New York Federal Reserve survey showed the consumer expectations over the longer term had accelerated in February. It continued Tuesday with news that consumer prices rose 3.2% from a year ago, and then culminated Thursday with a release indicating that pipeline pressures at the wholesale level also are heating up. Those reports will provide a lot for the Fed to think about when it convenes Tuesday for a two-day policy meeting where it will decide on the current level of interest rates and offer an updated look on where it sees things heading longer term. “If the data keep rolling in like this, it becomes increasingly difficult to justify a pre-emptive rate cut,” wrote Steven Blitz, chief U.S. economist at TS Lombard. Taken together, the numbers show “the great disinflation has stalled and looks to be reversing.” Wholesale inflation rose 0.6% in February, much more than expected Voters blame businesses more than Biden for sticky inflation Now comes the hard part for the Fed to achieve its goal of getting inflation to 2% The latest jolt on inflation came Thursday when the Labor Department reported that the producer price index, a forward-looking measure of pipeline inflation at the wholesale level, showed a 0.6% increase in February. That was double the Dow Jones estimate and pushed the 12-month level up 1.6%, the biggest move since September 2023. Earlier in the week, the department’s Bureau of Labor Statistics said the consumer price index, a widely followed gauge of goods and services costs in the marketplace, increased 0.4% on the month and 3.2% from a year ago, the latter number slightly higher than forecast. While surging energy prices contributed substantially to the increase in both inflation figures, there also was evidence of broader pressures from items such as airline fares, used vehicles and beef. In fact, at a time when the focus has shifted to services inflation, goods prices leaped 1.2% in the PPI reading, the biggest increase since August 2023. “There continue to be signs in PPI data that the disinflation in goods prices is largely coming to an end,” Citigroup economist Veronica Clark wrote after the report’s release. Taken together, the stubbornly high prices appear to have taken their toll on both consumer expectations and behavior. While substantially lower than its mid-2022 peak, inflation has proved resilient despite the Fed’s 11 rate hikes totaling 5.25 percentage points and its moves to cut its bond holdings by nearly $1.4 trillion. The New York Fed survey showed that three- and five-year inflation expectations respectively moved up to 2.7% and 2.9%. While such surveys often can be especially sensitive to gas prices, this one showed energy expectations relatively constant and reflected doubt from consumers that the Fed will achieve its 2% mandate anytime soon.
Consumer spending decreasing
Jennifer Sor, 3-14, 24, Business Insider, Recession odds are ‘very high’ as economy looks poised to see an unemployment wave and plunging consumer spending, chief economist says, https://www.businessinsider.com/recession-outlook-economy-hard-landing-unemployment-job-market-outlook-growth-2024-3
On a policy level, that could mean the Fed may hold rates higher for longer than the market expects. Traders in the fed funds futures market earlier this year had been pricing in as many as seven cuts totaling 1.75 percentage points; that since has eased to three cuts. Along with the surprisingly strong inflation data, consumers are showing signs of letting up on their massive shopping spree over the past few years. Retail sales increased 0.6%, but that was below the estimate and came after a downwardly revised pullback of 1.1% in January, according to numbers adjusted seasonally but not for inflation. Over the past year, sales increased 1.5%, or 1.7 percentage points below the headline inflation rate and 2.3 points below the core rate that excludes food and energy.
Policy-makers will soon make decisions about raising rates
Jennifer Sor, 3-14, 24, Business Insider, Recession odds are ‘very high’ as economy looks poised to see an unemployment wave and plunging consumer spending, chief economist says, https://www.businessinsider.com/recession-outlook-economy-hard-landing-unemployment-job-market-outlook-growth-2024-3
Investors will get a look at how policymakers feel when the rate-setting Federal Open Market Committee convenes next week. The FOMC will release both its rate decision — there’s virtually no chance of a change in either direction — as well as its revised outlook for longer-term rates, gross domestic product, inflation and unemployment. Blitz, the TS Lombard economist, said the Fed is correct to take a patient approach, after officials said in recent weeks that they need more evidence from the data before moving to cut rates. “The Fed has time to watch and wait,” he said, adding that “odds of the next move being a hike [are] greater than zero.” Recession coming The odds of the economy tipping into a recession are “very high,” as the US is poised to see a wave of unemployment and a major drop in consumer spending. That’s according to Joe LaVorgna, the chief economist of SMBC Nikko Securities who’s among the few on Wall Street still sounding the alarm about the risk of a coming recession, as forecasters adjust their outlook amid a strong economy and resilient labor market. But a no-landing scenario is a “silly” concept to even think of, LaVorgna said in a recent webcast with Rosenberg Research, estimating that the odds of a recession are between 49%-51%. Related stories Nearly everyone has given up on their recession call, and that makes the outlook ‘dangerously reminiscent’ of 2007, SocGen says Layoffs could be coming as debt-laden firms navigate the pain of higher rates, economists say A majority of strategists no longer think the most famous recession indicator is reliable, new survey shows Recession indicators that have predicted previous downturns have already flashed a warning. The Conference Board’s Leading Economic Index suggests there will be “near-to-zero” GDP growth over the second and third quarters, the group said in a recent statement. The closely watched 2-10 Treasury yield curve also remains inverted, while bank lending has contracted in recent months. “All three of those metrics are still flashing recession,” LaVorgna said. The labor market could also be poised to weaken, especially within the residential real estate market. The construction sector is over-employed by roughly a million workers, LaVorgna estimated, which could spark a wave of job losses as housing activity doesn’t pick up. The impact of construction layoffs alone could push the overall unemployment rate up by 60-70 basis points, he predicted. “If rates don’t come down very dramatically, very quickly, my guess is that we’re going to lose a significant amount of construction employment,” he warned. “Is it possible the Fed cuts rates very dramatically? Yes. But that’s only going to happen or most likely going to happen if there’s a recession.” Advertisement Strong consumer spending on goods also looks poised to drop, which could end up dragging economic growth lower, LaVorgna said. That’s because Americans aren’t likely to keep up their rapid pace of spending, thanks to higher borrowing costs and depleted excess savings they accumulated during the pandemic. “It makes me think recession risk … still has a very high probability,” he added. That risk doesn’t seem as apparent to investors, who are generally feeling bullish on stocks and the economy over the coming year. 46% of investors said they felt bullish on stocks for the next six months, according to the AAII’s latest Investor Sentiment Survey. Economic optimism also rose to its highest level in two years in January, according to Gallup’s latest Economic Confidence Index survey.
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.
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 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.
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.
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.
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.
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.