Inflationary Outlook in the U.S. Economy: Prognosis for the Next Generation of Booms, Flavor Changes, and the Impact on Labor Markets

“Inflation is very high – it’s unacceptably high and Americans feel that every day,” Yellen said when asked how the administration squared its view of the US economy with soaring discontent among voters. Efforts to bring the prices back down to levels people are more accustomed to will take time, but will likely happen in the next couple of years.

The government reported Friday that its preferred inflation metric, personal consumption expenditures (PCE), rose 6.2% from a year ago in August. That was lower than July’s reading.

The core reading of the consumer price index rose in August rather than falling as expected, and it surprised economists.

The central bank is charged with a dual mandate: maximize employment (check) and ensure price stability (uncheck). The goal is to keep jobs and reduce consumer prices, which have been hovering at 40-year-highs and currently sit at 8.2%. Powell thinks it’s possible to get a soft landing, but most economists think it’s remote.

Although low unemployment rates and wage growth may seem to be good for an economy that is close to recession, they have actually proven bad for markets.

Inflation is not just a function of the price of oil and other commodities and production costs like manufacturing and shipping. How much workers take home in their paychecks is also a big part of the inflation picture.

When people have more money in their wallets (virtual or good old-fashioned leather ones), they tend to be more willing to spend it. That gives companies additional flexibility to raise prices.

The problem is that wage growth above 5% is still historically high. Wages rose by 3% before the Pandemic. When there was a labor shortage, power was shifted from the employers to the employees.

The Fed will not be given a lot of comfort by the rise in inflation, according to David Petrosinelli, senior trader with InspireX.

What Happened in October Retail Sales: The Greatest Losses of Business and Personal Incomes in the U.S. Since World War II

What’s happening: US retail sales, which measure the total amount of money that stores make from selling goods to customers, fell 0.6% in November, the weakest performance in nearly a year. The drop was concerning to economists who had expected a small decrease in sales. It’s also a sharp reversal from October’s sales increase of 1.3%.

The third quarter is mercifully over. It has been another bad week for the market. September in particular was bleak. It was the worst month since the outbreak of the Pandemic in March 2020.

But even though we’re seemingly in a bear market for everything as bonds, gold and bitcoin have all tumbled this year as well, there are some hopeful signs for the next few months.

During the fourth quarter on Wall Street, it’s usually a good time. Investors tend to buy stocks in anticipation of robust consumer shopping during the holidays. Businesses spend more to get rid of their yearly budgets. In October, major companies often give rosy guidance for their earnings in the coming year.

Hirsch added that a dozen bear markets since World War II have ended in the month of October. And of those twelve, seven market bottoms happened during midterm election years.

Republicans will win control of the House in the fall and traders will keep a close eye on it. That could lead to more gridlock in DC, which investors tend to like.

It’s up for debate whether Corporate America and investors will be so bullish in October given the concerns regarding the global economy and interest rates. October is best known for the huge crashes of 1987 and 1929.

“We’re nearer to a bottom,” said Christopher Wolfe, chief investment officer of First Republic Private Wealth Management. “A lot of quality companies are on sale. It’s a time to be patient and reposition.”

The Fed and the Budget Crisis: The State of the Economy in the Context of the Great Depression and the Rise of the U.S. Dollar

Thursday: US weekly jobless claims; earnings from ConAgra and others.

Higher borrowing costs make it more expensive to get a car loan, buy a house, or carry a balance on a credit card. It’s already stopped demand in the sensitive housing market.

Higher borrowing costs have depressed the housing market. Other parts of the economy have begun to slow. But consumers, still flush with cash saved up early in the pandemic, continue to spend money. The Fed may have to tap the brakes harder because of this.

But many economists and several international bodies have warned that there’s a pronounced danger or overdoing it, including a United Nations agency that warned the damage could be particularly acute in poorer nations. Developing economies were already dealing with a cost-of- living crisis due to soaring food and fuel prices, now the dollar is increasing the cost of imports from the United States.

The Fed’s moves have spurred market volatility and worries about financial stability, as higher rates elevate the value of the U.S. dollar, making it harder for emerging-market borrowers to pay back their dollar-denominated debt.

Gad Levanon: The Labor Market in Pre-Pendemic Stochastic Times and the Obstacles for Growth and Jobs

The Burning Glass Institute has a chief economist named Gad Levanon. He’s the former head of The Conference Board’s Labor Market Institute. His opinions are his own in this commentary.

The US economy is expected to have added 200,000 jobs last month, compared with 263,000 in September, but well above the pre-pandemic average. The unemployment rate is expected to edge up slightly, to 3.6% from 3.5% — still close to a half-century low.

Second, despite the slowing of the economy and the growing fears of recession, layoffs are still historically low. Initial claims for unemployment insurance were 219,000 for the week ended October 1st, which is higher than last week but still a low one in recent decades. Many employers are reluctant to drastically reduce the number of workers even as their businesses are slow after years of traumatic labor shortages. Companies are worried they won’t be able to find new workers when they expand again.

Fifth, during the pandemic, corporate investments in software and R&D reached unprecedented levels, which drove a rapid increase in new STEM jobs. Because these workers are well paid, they have had enough disposable income to spend on goods and services, which has contributed to job growth.

Positive momentum won’t be gone overnight, thanks to these factors. Employment growth is likely to slow down from its historically high rates, but it will still remain solid in the coming months. The hiring intentions for the fourth quarter are still very high despite decreasing from the previous quarter in the Employment Outlook Survey.

There are two ways to rein in the labor market: Either reduce demand for workers or increase the labor supply. It is difficult to increase labor supply. The kind of legislation needed to increase immigration, drive people into labor force or grow investment in workforce training is required. This will be hard to find in today’s political environment.

Inflationary Data: What Happened Over the Last Three Months and the Fed Is Predicting Its Effects on the Economy

The core inflation figure, which excludes the effect of food and fuel, rose more than expected, while the increase in the prices was more than economists had expected.

The monthly figures will be more closely watched by Fed officials and Wall Street analysts. The monthly data give a clearer snapshot of how prices have changed over time and what happened in the past year.

Fed policy takes time to work, and most economists would not expect this year’s adjustments to be pulling inflation drastically lower yet. The effects of rate moves are expected to first show up in consumer goods and services. That has yet to happen. Consumers are willing to pay up when it comes to restaurant meals, cigarettes, stationery, and many other items.

The Fed’s rate hike regimen will end by the second quarter of next year, according to analysts from JP Morgan. The Fed is predicted to end its tightening in the new year and begin to reduce inflation before the end of 2023 as inflation fades and policy is likely to remain on hold. The analysts expect two quarter-point hikes in the first half of 2023.

The Fed policymakers are meeting this week and they are expected to raise interest rates in order to bring the prices under control and make it harder for the economy to grow.

Mr. Biden said that costs have gone up by less over the past three months than they had in the prior three months. But he also acknowledged that inflation remained painfully high.

After making three unusually large rate increases, officials had suggested they would debate slowing down in November. The fresh inflation data makes another big move more likely, and economists said it could make it difficult for the Fed to slow down by the end of the year, as policymakers had previously forecast.

Even countries with bigger buffers from the supply shock are taking steps to address energy prices. The Department of Energy plans to release 15 million more barrels of oil.

Policymakers’ initial instinct during the pandemic was economic preservation. To prevent Covid from setting off a deep recession, they enacted relief measures. In some cases, they might have gone too far: The point of stimulus packages is to elevate spending and demand, keeping the economy afloat. But if supply can’t keep up with the new demand, prices will rise.

Once they did, central banks were also slow to respond — believing that the inflation would subside as the impact of global catastrophes like the pandemic faded. Inflation went up too fast.

Both problems were suffered by the U.S. America spent among the most of any country in the world on economic relief, likely leading to too much demand and then worse inflation. And for much of 2021, the Federal Reserve viewed rising prices as a temporary phenomenon; it didn’t acknowledge that inflation was enduring until late last year.

That combination of overstimulus and central bank inaction helps explain why the U.S. had the highest inflation rate among its peers until Russia’s invasion of Ukraine.

If it weren’t for the war, the U.S. could still be worse off than the others. America’s core inflation rate is higher than many of her peers because it excludes food and energy costs, a sign that it has deeper issues than those caused by global events. The labor market in particular remains hot, with an unusually high number of job openings for each unemployed worker. These are some problems that the Fed is trying to address without causing a deep recession.

In an exclusive interview with CNN, the Treasury Secretary said she didn’t see a recession in the near future as the economy rebounded after six months of contraction.

The economy still remains strong, standing out in comparison to how other economies around the world are doing according to the President.

Gross domestic product — the broadest measure of economic activity — rose by an annualized rate of 2.6% during the third quarter, according to initial estimates released Thursday by the Bureau of Economic Analysis. That’s a turnaround from a decline of 1.6% in the first quarter of the year and negative 0.6% in the second.

The U.S. Economy is Strong as Hell, and America is Going to Be Better: State of the Art and the Failures of the Biden Administration

President Joe Biden and his top economic officials have tried to balance out the rapid economic recovery and legislative victories while also pledged to tackle soaring prices by attempting a number of things over the course of this year.

It is a reality that has prevented the administration from being able to take advantage of what they view as a strong record. Biden, asked about the economy last week, told reporters it’s “strong as hell,” drawing criticism from Republicans.

The efforts to get the US economy out of a crisis have yet to receive the credit officials think is merited.

Many families in American could have faced difficulties if we’d had a few problems like that. “These are problems we don’t have, because of what the Biden administration has done. So, often one doesn’t get credit for problems that don’t exist.”

In a bid to highlight the legislative wins of the administration, Fed chair nominee Janet Yellen went to Cleveland to highlight the tens of billions of dollars in private sector investment those policies have driven towards manufacturing around the country.

It is a crucial part of an economic strategy designed to address many of the vulnerabilities and flaws laid bare as Covid-19 ravaged the world.

Even though she acknowledged that it would take time to full effect, she still listed a number of major private sector investments, including the Intel plant opened a few hours drive outside of Columbus.

“But you’re beginning to see repaired bridges come online – not in every community, but pretty soon. Many bridges that have fallen apart are going to be fixed. Money is flowing into research and development, which is great news for the American economy. And America’s strength is going to increase and we’re going to become a more competitive economy,” she said.

Source: https://www.cnn.com/2022/10/27/politics/janet-yellen-gdp-recession-cnntv/index.html

The Debt Ceiling and the House Budget Crisis: Rejoind Yellen on the Issues of the Washington Debt Crisis and the Future of the Fed Chair

Yellen also addressed the battle lines that have been drawn this week over raising the debt ceiling, a now-perpetual Washington crisis of its own making that House Republicans have once again pledged to utilize for leverage should they take the majority.

But Yellen, who has long highlighted the “destructive” nature of the showdowns, has also backed doing away with the debt limit altogether through legislation. The group of House Democrats wrote to Democratic leaders in order to get that action, but Biden refused to do so.

She made clear she didn’t plan to leave the administration when it was in the middle of a time period when top officials usually leave. Asked about reports she had informed the White House she wanted to stay into next year, Yellen said it was “an accurate read.”

“I am excited by the program that we discussed,” said the Fed chair. I see how it strengthens the economic growth and addresses climate change and strengthens American households. And I want to be part of that.”

Fed Rate Increases: How Will the US Economy Fail in the Presence of an Inflationary Crisis? A Senator’s Letter to the Editor

That’s a sharp reversal from the upward trend in rates we’ve seen for most of 2022. Those increases were spurred by the Federal Reserve’s unprecedented campaign of harsh interest rate hikes to tame soaring inflation. But mortgage rates have tumbled in the last several weeks, following data that showed inflation may have finally reached its peak.

Even if interest rate hikes do ease off, they will remain high, and economists are largely expecting that the US economy will endure a recession next year. Powell said in November that there is still a chance the economy avoids recession but the odds are slim, noting: “To the extent we need to keep rates higher longer, that’s going to narrow the path to a soft landing.”

Esther George, the president of the Federal Reserve Bank of Kansas City, said that there is still a bit of savings buffer for households that may allow them to keep spending. That suggests we may have to do this for a while.

George said last month that he has been in the camp of slower rate increases to see how effects from a lag will unfold. I worry that a succession of large rate hikes could cause you to oversteer and miss those turning points.

“We are alarmed that your interest rate increases might lead to a slower economy while not slowing rising prices that will hurt families,” the senators wrote in the letter.

Shawn Woods said that his company used to sell a dozen houses per month before the Fed started raising rates.

Woods, president of Ashlar Homes and the Home Builders Association of Kansas City, said that he wouldn’t think we’d go from 3% to 7% in six months.

“I think we’re in for a rough six or eight months,” Woods said. “Typically, housing leads us into downturns and it leads us out of downturns. And I think from a housing perspective, we’ve probably been in a housing recession since March or April.”

When the Bureau of Labor Statistics releases its October jobs report on Friday, it will be thelast major read of the economy before the mid-term elections, as new data shows that the white-hot labor market is showing some signs of cooling off.

Everyone should keep their jobs and see some softerening of the labor market in the future according to the Fed.

A strong job market in normal times is the kind of news that might be celebrated, but in 2022 it’s cause for concern, as it suggests the economy is overheating. On Wednesday, the Fed announced its fourth-straight three-quarter-point hike, the latest in a series of aggressive moves that would have been unthinkable just a few months ago.

That’s because in this good-is-bad economy, inflation and unemployment have an opposite relationship — higher wages mean higher inflation as companies pass on higher costs by raising the price of goods. Fed officials have accelerated their rate increase campaign after a strong jobs report.

The likelihood of an economic downturn is increasing, and the Fed’s projections may reflect that. But the Fed is not expected to start cutting interest rates until 2024 at the earliest, so it may be too late for the central bank to prevent a recession.

Democrats attempting to hold on to power next week, will likely be hurt by the pain of inflation over the positive sentiment about job security. According to a new CNN poll, three-quarters of likely voters already feel like the country is in a recession.

Generation Z: The Real Problem of First-Time Buyers in a Mortgage-Round Market and the Rise of the Urban Fringe

The average age of a first-time buyer is now 36, up from 33 last year.

(It also didn’t hurt that dizzying stock surges meant Baby Boomer parents with large investment portfolios were happy to pass on some of those gains to their darling Millennial kids.)

As that 2020 housing boom begins to go bust, those who managed to close on a home in the crush of competition fed by rock-bottom mortgage rates should count themselves extremely lucky.

Over the last decade, the share of first-time buyers has ranged between 30% and 40%. In the middle of the Great Recession, it was as high as 50%.

According to Jessica Lautz of theNAR, they need to save while paying more for rent, student debt, and other expenses. “And this year were facing increasing home prices while mortgage rates are also climbing.”

Home prices shot up in June as mortgage rates went up, and the median price hit $413,800. (Imagine your starter home clocking in at 400 grand!)

Housing is broken. I don’t purport to have a silver bullet, but it’s clear that inventory constraints and outdated zoning restrictions are a big part of the problem.

Rather than rebuilding within existing neighborhoods, housing supply has expanded through “sprawling single-family subdivisions at the urban fringe.” More people and homes will be moved to areas that are more prone to wildfire.

As affordability reaches crisis levels, now is a good time for federal and local governments to rethink the way we frame the American Dream. If Gen Z and Millennials are better represented in elected office, then that will happen. Schuetz suggests that the Boomers are reluctant to change the system that helped them get to where they are.

The First Mile of a Marathon: What Happens if the Fed Tightens Faster than It Expected? (An Audio Version)

(Side note: “Basis points” are how central bankers talk about rate moves, which usually happen in tiny increments. One basis point = one-tenth of a percentage point.)

CNN Business published a version of the story. Not a subscriber? You can sign up here. You can listen to an audio version of the newsletter by clicking the same link.

The stock market moved up in its best day since 2020 after a key inflation indicator came in softer than expected. The investors took the report to mean that the peak inflation may be behind us. That means the Federal Reserve could be less aggressive with its rate hikes.

The Summary of Economic Projections is due out Wednesday and will be read by investors. They will watch the press conferences Powell holds for clues to what is to come.

Rick Rieder, Chief Investment officer of Global Fixed Income, said that the Federal Reserve attempts to bring inflation down toward its 2% target requires some patience but that moving forward is important.

The first mile of a marathon is important. If the report is correct, a soft or soft-ish landing is still possible, if inflation doesn’t rise too much. That is also good for the markets.

“If the Fed doesn’t have to tighten as aggressively, the economy will weaken less, and headwinds for stocks will be smaller,” wrote Bill Adams, chief economist for Comerica Bank in a note.

The Rise and Fall of the Cryptocurrency Market: Three More Years of Growth, Perturbation, and Embedding in the Digital Currency

It has been a hard year for cryptocurrencies. The value of Bitcoin has dropped nearly 75% since last November and the spectacular implosion of cryptocurrency exchange FTX, a so-called unicorn startup that was recently valued at $32 billion, is just the latest bit of bad news for investors in digital currencies.

Unfortunately, those assets have gotten hit just like stocks and bonds, proving there really is no place to hide in a market where worries about rate hikes and recession reign supreme.

Near-zero interest rates, a large influx of investors from large-scale institutions, and a quiet thaw in the space of a few years have all contributed to the rise of the digital currency. It was a record high of nearly $70,000 in November.

The dollar strengthened as central banks began raising rates in order to fight inflation, seducing investors as a safe haven. At the same time, the economy began to weaken, which resulted in the exit of those new investors who had still viewed it as a risky asset.

Since the summer of 2020 there’s been a price spike for the virtual currency. They’re up more than 80%…even though it has been far from a smooth ride. The Nasdaq, by way of comparison, is only up about 1% from July 2020 levels.

The cost of housing finance has changed so dramatically in the past eight months that sales have fallen, according to the National Association of Realtors. A survey by Fannie Mae shows that only a small percentage of people think this is a good time to buy a home.

Inflation is the #1 issue for Americans despite the Federal Reserve raising interest rates six times this year. In a recent CNN poll, the current cost of Living represents a near universal worry, with 98% of respondents saying they were at least somewhat concerned by this.

Gas prices are currently about the same as last year, although they went up to a record high this summer. For perspective, a gallon of regular has fallen by almost 50 cents in just a month, making it about $10 cheaper to fill up an average SUV today than a month ago.

“Falling prices in categories such as toys and electronics accelerated demand in November,” Adobe reported, noting that computers and electronics saw the biggest year-over-year price cuts since 2014. Toy prices fell 7.7% year over year and sporting goods prices dropped 5.7%.

Retailers awash with excess inventory are expected to keep marking down goods into the end of the year, as consumers shift from buying couches and clothes to spending on travel and experiences — where prices are not coming down for now.

The prices of many goods are stabilizing, despite the volatile and unpredictable prices of food and energy. Used car prices fell 2.9% between October and November, while new car prices were flat.

Fed Rates and the Producer Price Index: Why the Bank of England is Hitting a New Low-Cost Low-Energy Target

Traders are betting on just a half-point increase. The chance of a half-point hike in federal funds futures is 80%.

The hope is that inflation will start to abate so that the Fed can stop hiking rates, which will cause the economy to go into recession.

But it may not be that simple. The government reported Friday that a key measure of wholesale prices, the Producer Price Index, rose 7.4% over the past 12 months through November. That was a bit higher than the expected rate of 7.2% but a marked slowdown from the 8% increase through October.

The Fed factor: November’s report could indicate that consumers are feeling the double-punch of sky-high inflation and painful interest rate hikes from the central bank. The retail data shows that consumers may be becoming more cautious with their spending.

“Inflation has probably peaked but it may not come down as quickly as people want it to,” said Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research.

Jones still thinks that the Fed will raise rates by half a point this week and possibly just a quarter point early in the future. She admits that the Fed is making it up as they go along.

Wednesday: Fed meeting; EU industrial production; UK inflation; earnings from Lennar

            (LEN) and Trip.com

            (TCOM)

“A pivot or pause is not a cure-all for this market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. “Rate cuts may be too late. Recession risks are still relatively high.”

Inflationary Impact on Retail Sales and Business Opportunities in the UK: An Analysis of Comgest, Hermes and L’Oreal

Maybe consumers were getting a head start on holiday shopping. Retail sales have been impacted by inflation since people have to spend more money to get stuff.

“Everybody has been talking about inflation this year. The CEO of Comgest Global Investors said it will be more about disinflation in the years to come.

What does that mean for investors? People should be looking for quality consumer companies that have pricing power and can maintain their profit margins. He owned two of the companies that his firm owned: luxury goods maker Hermes and makeup giant L’Oreal.

Friday: Eurozone PMI; UK retail sales; earnings from Accenture

            (ACN), Darden Restaurants

            (DRI) and Winnebago

            (WGO)

“The economy is moving in the right direction from the Federal Reserve’s perspective at the end of 2022, but not quickly enough,” Gus Faucher, chief economist for PNC Financial Services, said in a statement. “Higher interest rates are weighing on consumer spending, particularly for durable goods, and inflation is slowing.”

The Fed is Coming: Pricing More, Charge More, and the Costs of Business, Housing and Other Finance Products in the U.S., Mexico, and California

Fed policy could come in there. If customers are willing to pay more, companies will be able to charge more. The Fed can stop that chain reaction by lifting interest rates to slow demand.

For businesses and households, the hike is double the Fed’s customary quarter-point hike and will likely cause economic pain by pushing up the cost of borrowing for homes, cars and other loans.

The rate that banks charge each other for overnight borrowing will increase to a range of between 4.5% and 4% if the Fed increases its interest rates.

The European Central Bank, the Bank of England and the Swiss National Bank are expected to follow the United States with half-point moves of their own on Thursday. Borrowing costs will probably increase in the Philippines, Mexico, and others this week.

Gasoline and grocery prices moved in opposite directions last month, as the overall inflation rate declined slightly. The year-on-year increase of consumer prices in November was 7.0%, compared to the previous month’s annual increase of 7.7%.

The price of gasoline fell 2% between October and November, while gas was sold for less than a year ago.

Due to high transportation costs and growing issues in California, a box of romaine lettuce can cost more than $100 on the east coast.

lettuce production in the Salinas Valley was affected by an insect-borne virus. Diesel fuel costs nearly $5 a gallon, despite the fact that gasoline prices have fallen.

The rent cost of living in the United States is up 4% in four years, according to the Central Bank of Monetary and Financial Markets

The average cost of renting a home in April was nearly 15% higher than a year ago, according to a data company. By September, the annual increase had dropped to around 10%, partly because of softening demand.

“People are now, as a result of high rent, doubling up again, so we’re seeing an increase in the number of people moving in with roommates,” said CoreLogic economist Selma Hepp.

Rents are reflected only gradually in the official inflation data, so the slowdown in housing costs is not yet fully evident in the consumer price index.

The Fed chairman is less confident about the price of services, which includes everything from restaurant meals to haircuts and which is largely driven by the cost of labor.

The latest government reading showed that inflation is running at its lowest annual rate in more than a year.

“It’s good to see progress, but we have a long way to go in getting back to price stability,” the Chairman of the Fed said at a press conference, after the board announced a small rate increase.

Many Americans, already contending with price increases in nearly every part of their lives, are feeling the effects as they pay more in interest on credit cards, mortgages and car loans. It has been found that the average interest rate for used cars is more than double that of new cars, and they are making the largest monthly payments on record.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the central bank said in a statement on Wednesday.

Fed Chairman Michael Powell: What’s next? The job market is not going to be as strong as expected, and the cost of living is going down

Stocks plunged earlier this month after the closely watched November jobs report showed a resilient labor market. They fell again on Thursday when weekly numbers showed the number of Americans filing for unemployment benefits fell, indicating a still-tight labor market.

The Fed believes the worst of shelter inflation may be behind us. Increases in market rents have slowed since spring.

While some prices have come down, the overall cost of living is still climbing much faster than it was before the pandemic. At 7.1%, the November inflation rate is well above the Federal Reserve’s 2% target. It’s also more than three times the rate of inflation in February 2020 – before COVID-19 led to the economy shutting down. The rising cost of services such as haircuts and restaurant meals is particularly worrisome, since that’s largely driven by labor costs, which tend to be stickier than volatile food and energy prices.

Powell said they see goods prices coming down. “We understand what will happen with housing services. The rest of it will be really important, and there isn’t much progress there. And that’s going to take some time.”

Powell thinks that the job market is unbalanced, with more openings than workers who are available to fill them. In the United States, the economy has replaced all of the jobs that were lost during the flu, but the share of adults who are working or looking for work hasn’t fully recovered.

Many older workers who retired in the last two years don’t come back to work. The Fed is trying to rein in demand because of the limited number of workers.

The central bank has made it clear it will do whatever it takes to bring inflation back down, and on Wednesday it raised interest rates for the seventh time in nine months.

Fed Chairman Powell said he wouldn’t consider rate cuts until the committee was confident that inflation was moving down to 2%.

The central bank has lowered its forecast for economic growth next year and raised its forecast for unemployment. But Powell says there’s considerable uncertainty.

“I am not sure whether or not we will have a recession or not and whether it’s going to be a deep recession or not,” he said on Wednesday.

Is the US Economy Holiday Madness Selling? Consumer Perceptions of the Economy During the November Retail Black Hole Data Release on Wall Street

Changes in the weather can cause big swings in the prices of goods at the store. The price of oil and other commodities could change as a result of slower economic growth in the world.

Even as the cost of used cars is falling, the Federal Reserve is still worried about the rising price of services. Service prices are largely driven by rising wages, and as a result they tend to be hard to reverse.

The market sentiment was hammered on Thursday due to the less than expected retail sales in November.

That’s a bad sign for the economy. Last month Brian Moynihan told CNN that continued strength in the US consumer was key to staving off recession. Consumer spending is a major driver of the economy, and the last two months of the year can account for about 20% of total retail sales — even more for some retailers, according to National Retail Federation data.

Market mania: The weak report means that spending faltered just as the holiday season started, a critical time for retailers to ramp up profits and get rid of excess inventory. The investors were not happy about that.

Shares of Costco

            (COST) closed Thursday 4.1% lower, Target

            (CBDY) fell by 3.2%, Macy’s

            (M) dropped 3.5% and Abercrombie & Fitch

            (ANF) was down 6.2%.

The entire sector took a blow — the VanEck Retail ETF, with Amazon

            (AMZN), Home Depot

            (HD) and Walmart

            (WMT)as its top three holdings, fell by 2.2%. The S&P retail stocks were all down.

“The headwinds of the past year are catching up to consumers and forcing them to be more conservative in their holiday shopping this winter,” warned Morgan Stanley economist Ellen Zentner in a note.

“Households are increasingly relying on their savings to sustain their spending, and many families are resorting to credit to offset the burden of high prices. These trends are unsustainable, and the current credit splurge is a true risk, especially for families at the lower end of the income spectrum,” said Gregory Daco and Lydia Boussour, economists at EY Parthenon.

American bank accounts are still quite robust, but they are starting to decline. Credit card balances increased in the third quarter. That’s the largest annual jump since the New York Fed began keeping track of the data in 2004.

Chinese companies in the epoch of financial recovery: Can Wall Street get out of financial delisting in the US? The case of the Wall Street tech giants

The 30-year fixed-rate mortgage averaged 6.31% in the week ending December 15, down from 6.33% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.12%, reports my colleague Anna Bahney.

“The good news for the housing market is that recent declines in rates have led to a stabilization in purchase demand,” he added. The bad news is that demand is really weak and that affordability hurdles are still high.

After threatening to ban the tech giants from stock exchanges if they did not receive the data, American regulators have been granted unprecedented access to the full audits of Chinese companies.

The announcement marks the end of a years-long dispute over how Chinese companies listed on Wall Street should be regulated. Laura He reported that it will be a huge relief for the firms and investors who have invested billions of dollars.

The chair of the Public Company Accounting Oversight Board said that they were able to perform full and thorough inspections to root out potential problems and hold firms accountable.

More than 100 Chinese companies had been identified by the US securities regulator as facing delisting in 2024 if they did not hand over the audits of their financial statements.

There are more than 260 Chinese companies listed on US stock exchanges, with a combined market capitalization of more than $770 billion, according to recent calculations posted by the US-China Economic and Security Review Commission.

What might happen: “Boy the Fed is really committed to this put us in a high unemployment recession thing,” Jon Stewart, former host of The Daily Show, tweeted after Wednesday’s meeting.

It’s possible that he’s correct — but some economists still think there’s hope that if employment softens in the first half of next year a Fed pivot could come quickly and with it, recovery.

Powell expressed optimism on Wednesday that a soft landing was still possible and that the labor market was tight enough to withstand an increase in unemployment without snowballing into a recession. The jobs number will be closely watched by investors.

Sam Bankman-Fried, an investor and cryptocurrency financier, is due to appear in a Bahamas court on Monday to contest extradition to the United States

Former FTX CEO Sam Bankman-Fried is expected to appear in a Bahamas court on Monday to reverse his decision to contest extradition to the US, a person familiar with the matter told CNN.

Last Tuesday, federal prosecutors from the Southern District of New York charged Bankman-Fried with eight counts of fraud and conspiracy. Bankman-Fried could face up to 115 years in prison if convicted on all eight counts against him, though he likely wouldn’t get the maximum sentence.

On top of that, US market regulators filed civil lawsuits accusing Bankman-Fried of defrauding investors and customers, saying he “built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto.”

The Saturday before Christmas — also known as Super Saturday — is typically the busiest shopping day of the November-December gift-buying period. With Christmas Day falling on a Sunday, and Christmas Eve falling on the preceding Saturday, Super Saturday this year is on Dec. 17th. 158 million consumers are estimated to shop on that day, says the National Retail Federation.

Shoppers have only purchased half of their gifts, the NRF says. Less than a week until Christmas Day, people have more buying to do and shipping deadlines approaching.

Source: https://www.cnn.com/2022/12/19/investing/premarket-stocks-trading/index.html

The Clock Is On: Retailing in the Clock: The Implications of a Growing Season of Gift-Giving

Retailers have a hard time waiting on an oversupply of merchandise. Retailers who store merchandise in their own warehouse and distribution centers have a finite amount of space to work with, with some wiggle room to accommodate excess inventory. If more space is needed they will have to pay more if they can’t clear out in a hurry.

Also, unsold products lose value over time. That’s especially true with fashion clothing as savvy shoppers won’t buy last year’s style if the trend has passed. Stores are then forced to heavily discount, which impacts profitability.

This year stores were already offering a variety of discounts and free shipping on all online orders, well ahead of the final weekend before Christmas.

Ross Steinman has been studying consumer behavior at Widener University for 20 years, and he has not seen discounts like this during the holiday season.

He said that retailers were very nervous. “The clock is ticking and they know they have to maximize every opportunity now to get consumers to make purchases.”

Inflation is not taking a holiday this year. One of the most talked about stories of the year was rising prices. This season of gift-giving is no exception.

The cost of buying a partridge, a pear tree and all the other items in the 12 Days of Christmas song has jumped 10.5% from a year ago, according to the annual “Christmas Price Index” compiled by PNC Bank.

The PNC Christmas Price Index: Inflation Price Increases More than Consumer Price Index for Goods, Services, and Loads

“True love is really going to have to shell it out this year,” said Amanda Agati, chief investment officer at PNC. “Clearly, our specialty gift basket of goods and services is not well insulated from some of the trends that the broader economy is experiencing.”

Turtle doves and French hens have both seen double-digit price increases, Agati said. Blame, in part, the rising cost of bird feed as well as the growing popularity of backyard farming.

The Christmas Price Index was higher than the Consumer Price index, which was 7.1% in November.

Costly services are also driving both measures higher. Dancing ladies, pipers, and even leaping lords, are included in the Christmas Price Index. The lords’ price-tag — which is based on salaries at the Philadelphia Ballet — leapt 24% this year.

“There’s no question services inflation is higher than goods inflation in the PNC Christmas Index,” Agati said. “But that’s what we’re seeing in the broader economy.”

As the Fed tries to control inflation, interest rates are going up. So people who put their holiday purchases on a credit cards may end up paying even more.

Source: https://www.npr.org/2022/12/20/1143245513/inflation-prices-christmas-gifts-presents-pnc

The Inflationary Progress of Swan Prices in the Twenty Two Years of 2020 and Implications for Manufacturing, Consumer Perturbations, and the U.S. Economy

The price of seven swans a swimming was unchanged in 2022. Swan prices have been treading water for the last three years, possibly a sign of waning consumer demand.

The annual increases for both PCE inflation indexes hit their lowest levels since October 2021 and follows continued declines in other inflation gauges, such as the Consumer Price Index and Producer Price Index.

Spending continued to rise in November, but was at a much slower pace than in previous months. Spending was up 0.1% in November as compared to 0.8% the month before. Personal income increased in November, but not as much as in October.

Inflation within the services sector has not been abating quickly. Friday’s PCE report showed the services index posted a monthly increase of 0.4% – unchanged from October’s rate – and a year-over-year increase of more than 11%, Faucher noted.

While much of the services inflation is due to housing costs, which are rapidly reversing, the Fed is concerned that strong wage growth could fuel persistent increases in services prices and overall inflation, he added.

A separate Commerce Department report released Friday showed that new orders for manufactured goods tumbled 2.1% in November, the biggest monthly drop since the onset of the pandemic.

Transportation equipment, specifically new orders for non-defense aircraft and parts, drove the decline, according to the report. New orders are up by 0.2%.

“Core durable goods orders slowed but did not contract, reflecting growing unease about the economy,” Diane Swonk, chief economist for KPMG, tweeted Friday after the report’s release. “Manufacturing activity has begun to contract and prelim reading for December suggests it will contract further at year end. A cold winter is expected for manufacturing.

The final December reading for the index of consumer sentiment came in at 59.7 in December, up slightly from a preliminary measurement of 59.1 and November’s final reading of 56.8, according to data from the university’s Surveys of Consumers.

The recent easing of inflation was welcomed by consumers according to the director of the Surveys of Consumers. Consumers have not yet made up their mind about whether the trends will continue or whether sentiment has turned a corner.

She said that the economy remains relatively weak despite an improvement in their outlook. If the incomes and labor markets continue to improve, robust consumer spending will be sustainable.

Earlier this week, the Conference Board’s consumer confidence index – another measure of how consumers are feeling about the economy – landed at its highest measurement since April 2022.