The jobs report is a must-watch for clues about the Fed rate hikes

Wage Growth Over the Last Twelve Months: Implications for the Economy, Consumer Prices, and the Fourth Quarter of the Great Wall Street Bubble

Investors cheered the fact that wage growth, measured by average hourly earnings, rose only 4.7% over the previous 12 months in October. Wage growth improved to 5.1% in November, up from 4.8% a year ago. Economists are predicting that wage increases cooled a bit, to 5% annually, in December.

Inflation is more than just a function of prices for oil, shipping, and manufacturing. The amount of money workers take home in their paychecks is a large part of the inflation picture.

People tend to be more willing to spend money when they have more money in their wallet. That gives companies additional flexibility to raise prices.

The problem is that wage growth above 5% is still historically high. Before the pandemic, wages typically rose just 3% year-over-year. But labor shortages, due to Covid-19 and people dropping out of the workforce, shifted power from employers to employees when it came to worker pay.

The Personal Consumption Expenditures price index, or PCE, rose 5.5% in November from a year earlier, the Commerce Department reported Friday. That’s lower than in October, when prices rose 6.1% annually.

In September, the Fed predicted that GDP will grow by 1%), an unemployment rate of 4.4% and an increase in personal consumption expenditures to 2.5% in the years to come. It’s quite possible that the Fed’s GDP target will be slashed and that it will raise expectations for the unemployment and consumer prices.

Economists are forecasting a small dip in retail sales in October. It is important to put that number in the proper context. Retail sales surged 1.3% from September and 8.3% over the past 12 months.

The third quarter is over. It has been another rough week for the market. September in particular was bleak. The worst month since the start of the Pandemic was the 31st.

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.

It’s typically a time of celebration on Wall Street. People tend to buy stocks in anticipation of robust shopping during the holidays. Businesses typically spend more as well to flush out those yearly budgets. And major companies also often give rosy guidance in October about earnings expectations for 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.

Traders will definitely be keeping close tabs on Washington this fall to see if Republicans gain control of the House. That could lead to more gridlock in DC, which investors tend to like.

Given the concerns about inflation, interest rates and the global economy, it is questionable if Corporate America and investors are going to be so bullish this October. Huge crashes have been a part of October, most recently in 2008 but also in 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.”

Do we really need a downturn? The American economy is not going to enter a recession until the end of the last four-term term

Thursday: US weekly jobless claims; earnings from ConAgra

            (CAG), Constellation Brands

            (STZ), McCormick

            (MKC) and Levi Strauss


That said, the big question weighing on everyone’s mind is whether or not the United States will enter a recession this year. The health of the economy can be determined by three important variables: The strength of the labor market, American consumer and the Federal Reserve.

Some economists and policymakers say that there is robust job growth, consumer spending and manufacturing. During a news conference last month, the Federal Reserve chairman said that there is still a way to get inflation under control without sparking a downturn.

“Now, I don’t think that means we’re going to have something like we had after Covid or something like we had during the [2008] financial crisis, but I do think that we had a period of very substantial stimulus and I think the other side of that is likely to be a downturn,” he added.

The US economy is not doing so well due to the high cost of goods and services. The Federal Reserve has stepped up its efforts to tamp down high prices via a series of blockbuster interest rate hikes.

Powell concedes that the path has gotten more narrow as the Fed has been forced to raise rates to bring inflation down.

“The way we’ve got to think about this is not managing with a fire drill every time we have some oil price problem,” Summers said. “It’s reducing our fundamental dependance on unstable and problematic parts of the world for our energy.”

The group of major oil producers, which includes Saudi Arabia and Russia, said Wednesday that it will slash oil production by 2 million barrels per day, the biggest cut since the start of the pandemic, in a move that threatens to push gasoline prices higher just weeks before US midterm elections.

The Biden administration criticized the OPEC+ decision in a statement on Wednesday, calling it “shortsighted” and saying that it will hurt low and middle-income countries already struggling with elevated energy prices the most.

The Persistence of Employment Growth in the U.S. Labor Market: Gad Levanon’s Commentary on the Burning Glass Institute

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

The hiring is surprisingly resilient. The unemployment rate dropped from nearly 15% in the spring of 2020 to 4.3% in November, as the economy created 263,000 jobs.

Why is employment growth so strong? First, the US economy is holding on better than many expected. The Atlanta Fed estimates real GDP growth to be 2.3% in the third quarter of 2022, which is less than a year ago, but still shows that we are not in a recession. The demand for workers to produce goods and services increases as the demand for goods increases.

There are signs the labor market is becoming less vigorous: The number of jobs being created has started to fall, while layoffs have moved higher and continuing claims have reached their highest level in February.

Third, many industries are growing faster than normal because they are still recovering from the pandemic. Convention and trade show organizers, car rental companies, nursing homes and child day care services, among others, are all growing fast because they are still well below pre-pandemic employment levels.

“Employment has yet to soften notably, but I think the jobs data is likely to deteriorate meaningfully and quickly,” said finance professor Jeremy Siegel of The Wharton School of the University of Pennsylvania in his weekly commentary for WisdomTree last week.

There are two ways to rein in the labor market: Either reduce demand for workers or increase the labor supply. But it’s hard to engineer a boost in labor supply. That requires legislation to increase immigration, drive people into the labor force, or grow investments in workforce training. This is likely to prove elusive in today’s polarized political environment.

What Does The Fed Really Want to Do? Economy and Stock Markets have Been During the First 14 Years of QFO Inflation: An Interview with Nomi Prins

Mr. Biden said the report showed “some progress” in combating the increases, noting that costs have climbed by less over the past three months than they had in the prior three months. He acknowledged that inflation was high.

Powell made it clear the Fed is not close to cutting rates in order to hit the gas on the economy. But just removing its foot from the brake would be a positive.

The trend has changed when measured on a monthly basis. Real wages have been growing faster than consumer prices, a significant shift that could give consumers firepower to keep spending next year.

A version of this story first appeared in CNN Business’ Before the Bell newsletter was published. Is it not a subscriber? You can sign up right here. You can listen to the audio version of the newsletter by clicking on the link.

So what’s going on? A decade of cash from the Federal Reserve to banks has led to two economies, according to Nomi Prins, a former managing director at Goldman. The years of low rates benefited the wealthy Americans and corporations, while Main Street suffered from decelerating wages. We’re now dealing with a permanent distortion where economic prosperity and market behavior have nothing to do with each other.

The markets were at multi- month highs again after taking a beating this year. It’s pointless to apply economic rationale to stock markets according to a recent interview with Prins.

Another mandate: The Federal Reserve is mandated to keep unemployment and prices in check, but the third unofficial mandate of the Fed is to boost markets, said Prins. “We’ve seen that over the last 14 years,” she added. Beginning in 2008, interest rates for overnight bank borrowing in the United States were set low, near zero, and Fed officials pursued an aggressive monetary easing policy, where they infused money into the financial system by purchasing Treasury securities from the US Government. That created a pervasive idea in the finance world that the stock market would go up no matter what, she explained.

The bulk of this stimulus flowed upwards into markets and not outward into the economy at large and created a world where investors became dependent on the Fed while the larger economy suffered, said Prins.

The credibility problem is a consequence of the Federal Reserve’s decision to raise rates earlier this year. Americans will need to believe that the central bank is steadfast in its effort to bring down prices if the Fed succeeds, they said.

The hope is that inflation pressures are finally starting to abate enough that the Fed can pivot — Fed-speak for a series of smaller rate hikes -— to avoid crashing the economy into a recession.

She says Main Street, not Wall Street is feeling the brunt of interest rate hikes through increased mortgage and borrowing rates.

Consumer prices soared by 7.1% year-over-year in November. At almost any other point in the past 40 years, that would be alarmingly high. This was the fifth straight month of improvement and it was a noticeable cooling off from June. It’s also the lowest annual inflation rate in nearly a year.

The Rise and Fall of the UK’s Third Prime Minister: Rishi Sunak, the Fed Chair, and the Growth of the Gross Domestic Product

Shortages of raw materials and labor continue to hinder businesses’ operations, according to the survey. The share of respondents reporting shortages remained near record levels.

Rishi Sunak, Britain’s third prime minister in seven weeks, will face the huge challenge of projecting stability after a period of historic political and financial market chaos. But his other task — shepherding the country through a recession — is poised to be just as daunting, reports my colleague Julia Horowitz.

Sunak campaigned for the job over the summer with promises to help households tackle the rising cost of living, which is causing many to pull back spending. He said he would cut taxes, but only once price pressures eased.

The economic outlook has deteriorated significantly since then due to the market turmoil that was caused by a plan to slash taxes as soon as possible.

Some of the world’s largest companies report third-quarter earnings after market close.

The Conference Board is expected to release a consumer confidence report later in the day.

Treasury Secretary Janet Yellen said Thursday in an exclusive interview with CNN that she did not see signs of a recession in the near term as the US economy rebounded from six months of contraction.

In an interview that aired on CNN, the Federal Reserve chair stated that GDP data released Thursday underscored the strength of the US economy as policy makers look to cool off pervasive and soaring inflation that has had a serious effect on American views.

The Bureau of Economic Analysis released preliminary data showing that gross domestic product rose by 2.6% in the third quarter. 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 Biden Administration of the Cleveland Economic Recession Revisited: The Case for Innovation, Innovation, and a Stronger Future of the American Economy

A complex balancing act has been tried by Biden and his top economic officials, who have sought to highlight a rapid economic recovery and major legislative victories while also promising to tackle soaring prices.

The administration has been unsuccessful in their attempts to take advantage of a robust record. Biden, asked about the economy last week, told reporters it’s “strong as hell,” drawing criticism from Republicans.

Efforts will be felt in the economy over the next few months and years. The administration has a message for Americans that is patience, said Yellen.

“There were several problems that we could have had, and difficulties many families American families could have faced,” Yellen said. The problems that we do not have are due to the actions of the Biden administration. So, often one doesn’t get credit for problems that don’t exist.”

Yellen traveled to Cleveland as part of an administration push to highlight the major legislative wins – and the tens of billions of dollars in private sector investment those policies have driven toward manufacturing around the country.

It’s a critical piece of an economic strategy designed to address many of the vulnerabilities and failings laid bare as Covid-19 ravaged the world, with significant federal investments in infrastructure and shoring up – or creating from scratch – key pieces of critical supply chains.

The $20 billion Intel plant opened a few hours drive outside of Columbus, was listed as a major private sector investment, even though she admitted that it would take time to full effect.

“But you’re beginning to see repaired bridges come online – not in every community, but pretty soon. Many communities are going to see roads improved, bridges repaired that have been falling apart. Money flowing into research and development is a key source of long term strength to the American economy. She said that America’s strength is going to increase and it is going to be a more competitive economy.


A New Look at the Washington Debt Crisis: Why President Biden isn’t Going to Adopt the Dedestructive Threshold

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. A group of House Democrats wrote to their Democratic leaders to request action in the final days of Congress, but Biden turned them down this week.

As the administration moves toward a time period that traditionally leads top officials to leave an administration, she made clear she did not plan to be one of them. Reports that she told the White House she wanted to stay into next year were an accurate read, according to Yellen.

“I feel very excited by the program that we talked about,” Yellen said. “And I see in it great strengthening of economic growth and addressing climate change and strengthening American households. And I want to be part of that.”

The younger generation of people are trying to buy their first home. The average age of a first-time buyer is now 36 years old, up from 33 last year.

The Real House Price Rises When Mortgage Rates and Homebuilding Prices Come Down: The Implications for the Economic Growth of Baby Boomers

(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.)

Those who were lucky enough to close on a home in the crush of competition fed by rock-low mortgage rates should be proud of themselves.

For a historical comparison, the share of first-time buyers over the past decade has been between 30% and 40%. It was 50% in the middle of the Great Recession.

Jessica Lautz, a vice president of Demographics and Behavioral Insights at theNAR, explained how people had to save while paying more for rent and student debt. “And this year were facing increasing home prices while mortgage rates are also climbing.”

What will the housing market look like this year? Home prices rose nearly 40% from the spring of 2020 to the spring of 2022, representing roughly a decade of price gains in just a couple of years. Will what went up also come down?

Housing is broken. I don’t have a silver bullet, but it’s evident that the problem is due to the constraints and restrictions on inventory.

The supply of housing has expanded through subdivisions at the urban fringe rather than rebuilding within neighborhoods. More people and homes are being put in areas that are more vulnerable to wildfire.

Now is the time for federal and local governments to think about how they define the American dream when affordability reaches crisis levels. But that will only happen if those who stand to benefit — Millennials and Gen Z — are better represented in elected office. Schuetz says that the upper-middle class Boomers are reluctant to change the system that got them where they are.

Why is the Fed’s Interest Rate Increase so Strong? Commentary on Goldman Sachs, Freddie Mac, CNN, and Queen Elizabeth II

In its seven meetings starting in March, the central bank’s policymaking arm raised its benchmark interest rate by a cumulative 4.25 percentage points. Mortgages were more than double the rate last year at this time, according to Freddie Mac, which is why the effect of the hike in rates starts to trickle through the economy.

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

In normal times, that kind of news is worth celebrating. The economy is overheating in the future and this is cause for concern. The Fed hiked interest rates for the fourth-straight time, the latest in a series of aggressive moves that would have been unthinkable few months ago.

He told CNN that the Fed over-tightens because of the job market’s strength. “The rest of the economy, to us, is very clearly signaling slowdown, imminent recession. And when you see the Fed revising their unemployment projections up, revising their GDP growth number down, it seems that they agree.”

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. Investors worry that a strong jobs report could fuel Fed officials to accelerate their rate increase campaign.

While investors, business leaders and some economic models continue to warn a recession is imminent, Wall Street’s most powerful investment bank remains cautiously optimistic.

But Goldman Sachs pointed out the transition to more sustainable — but still positive — economic growth “has already occurred, and it looks durable.” The bank expects gross domestic product growth of about 1% over the next year.

Goldman Sachs concedes that there has been “much less progress” on the price side. Inflation metrics have mostly stopped getting worse but they also haven’t really got any better either.

The United Kingdom has contracted in the third quarter and is now 0.4% smaller than at the end of last year.

The fall was driven by manufacturing and it was the largest decline in most industries. There was no change in services, but consumer-facing industries suffered with a notable fall in retail.

The extra bank holiday for Queen Elizabeth II’s funeral on September 19 also played a role, as some businesses closed or adjusted their operations that day, the ONS said. The GDP fell in September.

James Smith, the developed markets economist at ING, said in a note that lower consumer spending appetite is likely to help push GDP into a contraction during the fourth quarter.

The Bank of England warned last week that the UK economy could experience its longest recession since the 1940s. And the third quarter contraction contrasts with expansion of 0.2% in France and Germany, and growth of 0.5% in Italy.

The European Commission warned Friday that high inflation and rising interest rates are likely to tip the euro zone into recession in the fourth quarter. It now expects inflation to peak at the end of the year at a rate of 8.5%.

The commission said that the contraction of economic activity is expected to begin in the first quarter of 2023 and is caused by inflation.

There are CEOs and investors worried about a recession in the future. The more likely scenario is a slowcession, where growth slows and a full economic downturn is narrowly avoided.

It’s a strange question. How could we not know if we’re in a recession? It feels a little like asking, ‘Are I sad right now?’ Is it okay for you to be sad?

Weak economic growth piles pressure on the UK government as it tries to restore credibility with investors following a run on the pound and a bond market crash in September, triggered by former Prime Minister Liz Truss’ plan to slash taxes while boosting spending and borrowing.

The Finance Minister, Jeremy Hunt, has changed most of her plans in the first couple of days on the job and is expected to make some changes to the budget next week.

Responding to the latest GDP figures, Hunt said: “I am under no illusion that there is a tough road ahead — one which will require extremely difficult decisions to restore confidence and economic stability. To achieve sustainable, long-term growth, we need to control inflation, balance the books and reduce debt. There is no other way to go.

Fed Futures on the Chicago Mercantile Exchange and Implications for Inflationary and Core Rate Growth and the Future of the Emerging Market

Investors are now pricing in about a 70% chance of just a quarter-point rate increase at the Fed’s next meeting on February 1, according to Fed funds futures on the Chicago Mercantile Exchange.

Traders are betting on just a half-point increase. Federal funds futures on the Chicago Mercantile Exchange show an 80% probability of a half-point hike.

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. There was a slight increase but it was less than the 8% increase through October.

The most mainstream of the monthly inflation gauges, CPI, is due out Tuesday. January CPI is expected to have moderated to 6.2%, down from the 6.5% rate in December and far below the summer peak of 9.1%. Core inflation is forecast to have slowed to 5.5% from 5.7% in December.

The Fed meeting, EU industrial production, and UK inflation will be on Wednesday.

The Fed may think about the possibility of an economic downturn as the likelihood of it is increasing. 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.

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

Inflation, Wall Street Walls, and Wall Street Value: What do investors really want to know about the future of the U.S. economy?

It is conceivable that consumers were getting a head start on holiday shopping. Inflation has an effect on the numbers too, since retail sales have been impacted (positively) by the fact that people have to spend more money for stuff.

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

What does that mean for investors? People should be looking for quality companies with pricing power that can maintain their profit margins. Two stocks that his firm owns that he said fit that bill: Luxury goods maker Hermes

            (HESAF) and cosmetics giant L’Oreal


On Friday, the Eurozone’s purchasing manager index; UK retail sales are reported; and earnings from Accenture, DRI and WGO.

A lot of what pours in around this time of year is fascinating and rigorous research, but a lot is also moot. It’s simply impossible to predict what will happen over the next 365 days and how that might impact markets: At the end of last year, Goldman Sachs analysts predicted that the S&P 500 would close out 2022 at 5,100 points. Morgan Stanley said it would be 4,400. The S&P 500 closed on Friday at 3,934.

Market analysts aren’t alone. As International Monetary Fund economist Prakash Loungani concluded in a report on the accuracy of economic forecasts, “the record of failure to predict recessions is virtually unblemished.”

Truist thinks that the US will start to experience a recession in 2023 even though economic growth in the us is expected to remain stronger than global peers. Wells Fargo says a moderate recession in 2023 is due to a resilient labor market, slowing inflation and lower interest rates.

That will lead to a rough market. Earnings will be the driver of US equity returns, wrote analysts from JP Morgan.

Markets make a modest recovery as a result of this, which will lead to a more prosperous second half of the year, according to analysts.

Americans wealth continued to decline in the third quarter as stock prices plummeted, but many Americans still have a good financial cushion compared to pre-pandemic times.

The net worth of households and nonprofit organizations decreased by $400 billion in the third quarter. The value of households’ stocks declined by $1.9 trillion, while their real estate holdings increased in value by $700 billion, according to data from the Federal Reserve released Friday.

The Edinburgh Reforms: An Efficient Mechanism for Financial Markets to Strengthen the UK’s Financial Services Industry and Promote Competition in the UK

The Federal Housing Finance Agency House Price Index shows that house prices were up by just 0.1% in the third quarter.

Household debt grew at a slower rate in the third quarter compared to the previous quarter. Home mortgage debt grew at a slower pace than non-mortgage consumer credit in the third quarter.

Even with 75 percent of the public saying the economy is poor, a majority of Americans rate their own financial situation positively. On average, people seem to be saying that they’re doing reasonably well but that very bad things are happening to somebody else.

After the financial crisis, the British government is planning a relaxation of financial regulation in a bid to shore up the country’s banking and insurance industries against competition from Paris and Amsterdam.

The UK Treasury unveiled more than 30 measures Friday, dubbed the “Edinburgh Reforms.” The effort to make it easier for companies to list shares in London is among the changes being made.

“We are committed to securing the UK’s status as one of the most open, dynamic and competitive financial services hubs in the world,” Jeremy Hunt, the UK finance minister, said in a statement.

The effort was initially called a Big Bang 2.0 and was a nod to the dramatic deregulation of UK financial markets under Margaret Thatcher in 1986. The reforms are expected to be more gradual so ministers have changed their language.

The changes are being made to make sure that London is the global financial hub after the UK leaves the EU.

Why Do We Need to Talk About A Recession? The Case of Sam Bankman-Fried: Investors Are Fighting Bullies That Aren’t

Long-term bond yields have eased as well, with the yield on the 10-year US Treasury edging back down to about 3.5% after moving above 4.3% in late October. It was the highest it has been in the last decade.

“The macroeconomic focus will shift from fears of Fed tightening to how badly growth slows and earnings fall before global central banks can hint at providing accommodation,” said Tom Essaye, founder and editor of the Sevens Report investing newsletter, on Monday.

The CNN Business Fear & Greed Index, which tracks seven indicators of market sentiment, has gone into neutral territory after spending the past month in Greed mode, but it doesn’t compare to what’s happening with cryptocurrencies.

Bitcoin prices fell more than 15% in November and have plummeted about 65% this year. Digital currency investors are wondering about the future after the collapse of FTX, a company that was once valued at $32 billion.

Investors may get some answers this week when FTX founder Sam Bankman-Fried testifies in front of the House Financial Services Committee on Tuesday. Bankman-Fried won’t be in attendance at the Senate Banking Committee’s FTX hearing on Wednesday.

Maybe investors will be able to relax and take a deep breath before the Fed announcement and press conference later that day. Although there is no guarantee of that.

From the executive suite to the grocery aisles to the halls of the Federal Reserve, the big question is: Can red-hot inflation be vanquished without tipping the economy into a recession?

It is possible that talking about a recession will cause one. Consumer behavior and business planning are driven by how people feel. The famous British economist John Maynard Keynes coined the phrase “animal spirits” to describe what drives investors, consumers and business leaders. Fear, hope, uncertainty, and confidence are all hard to measure — and hugely important to how the economy fares.

He told CNN that he got into this kind of self-reinforcing negative cycle. “So when sentiment is this bad and starting to feed on itself, we run the risk of talking ourselves into one.”

Scott Kirby, the CEO of United airlines, told CNN This Morning that they were planning for a mild recession next year. “And a lot of people in the business world are trying to talk ourselves into one is what it sometimes feels like to me.”

But he added, “If I didn’t watch business shows or read the Wall Street Journal, the word recession wouldn’t be in my vocabulary because we just don’t see it in our data.”

JPMorgan Chase CEO Jamie Dimon has expressed concern for months about an impending recession, citing higher interest rates and consumers spending down their excess pandemic savings.

With inflation still at a high level, and central banks raising interest rates around the world, there are high risks for 2023.

The Fed does not give me a lot of optimism that they can navigate that without hitting a recession, so I think it is a narrow path. I think that avoiding a recession is very difficult if a soft landing is involved. I think that there is still a chance of a milder recession than recent history.

The Fed’s job report and the nature of the labor market: a warning on the possibility of a recession and deportation in the United States

The November jobs report was watched closely and caused stocks to plunge. They fell again on Thursday when weekly numbers showed the number of Americans filing for unemployment benefits fell, indicating a still-tight labor market.

Fed Chair Jerome Powell did not mince words last week when he said that the strong job market is exceedingly responsible for inflation and will have to weaken before rate hikes end. “There’s an imbalance in the labor market between supply and demand,” he said, adding that it will take a “substantial period” to fix that imbalance.

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.

He says that there may not be much difference between a soft landing and a mild recession. He says we need to pay attention to the possibility of a major recession.

The person said that Bankman- Fried is likely to agree to be deported to the US. My colleague Kara Scannell reported that Bankman- Fried would withdraw his case on Monday.

The Southern District of New York has indicted Bankman-Fried with eight counts of fraud and conspiracy. If he was found guilty on all eight counts, Bankman-Fried would face a maximum sentence of 115 years in prison.

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.”

Super Saturday is Coming & Going: Retailers are Nervous to Be The First to Shop at a Superconducting Warehouse or Distribution Center

The Saturday before Christmas — also known as Super Saturday — is typically the busiest shopping day of the November-December gift-buying period. Super Saturday this year is December 17th when Christmas Day and Christmas Eve are on the same day. More than 158 million people are estimated to shop on that day, according to the National Retail Federation.

Shoppers have only completed half their gift purchasing so far, the NRF estimates. With less than a week to go until Christmas Day, and deadlines approaching, people have more buying to do.

It’s also costly for retailers to sit on an oversupply of merchandise for too long. Retailers who store their merchandise at their own warehouse and distribution centers have enough space to process excess inventory, with some wiggle room. If more space is needed for a long period of time, it will add up.

Also, unsold products lose value over time. Even though last year’s style has passed, savvy shoppers won’t buy it if the trend continues. Stores are then forced to heavily discount, which impacts profitability.

Well ahead of the final full weekend before Christmas, stores this year were already offering discounts of 50% to 60% off, and tacking on free shipping for online orders.

“I’ve studied the holiday season for 20 years and haven’t seen discounting so dramatic,” said Ross Steinman, professor of consumer behavior at Widener University in Chester, Pennsylvania.

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

The Rise of PCE Inflation in the November Output from Consumers and Professionals, and Implications for the Consumer Product and Services Sectors

As supply chain constraints have alleviated, and consumers have focused on areas like leisure and hospitality, inflation has moderated in recent months.

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 in November rose, but at a slower pace than in previous months. Spending was up 0.1% in November as compared to 0.8% the month before. Personal income increased by 0.4% in November, down from 0.7% in October.

The economy isn’t moving fast enough but it is in the right direction from the Federal Reserve’s perspective at the end of the year. “Higher interest rates are weighing on consumer spending, particularly for durable goods, and inflation is slowing.”

Inflation within the services sector has been holding on, it’s not abating quickly. The services index posted a monthly increase of 0.4% and a year-over-year increase of more than 10% in the PCE report on Friday.

While the housing costs that cause much of the services inflation are abating, the Fed is worried that wage gains will lead to persistent increases in service prices and inflation.

December First Results from the Wall Street Wall Revisited: New Manufacturing Orders Sliding by 2.1% in the First Month of the Pandemic

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.

New orders for non-defense aircraft and parts drove the decline, according to the report. Excluding transportation, new orders increase 0.2%.

Diane Swonk, chief economist for KPMG, said core durable goods orders slowed but didn’t contract after the report was released. Manufacturing activity has begun to contract and the prelim reading for December indicates it will Contract further at year end. The manufacturing sector is expected to have a cold winter.

In December, the final consumer sentiment reading was up slightly from a preliminary figure but still below November’s reading.

The consumer confidence index reached its highest measurement in more than 4 years earlier this week.

For much of the past year, the central bank of America has been the focus of a lot of attention due to its use of monetary policy and quantitative tightening to curb inflation.

The Fed’slaser focus on the job market means it could be “continually hawkish” at the start of 2023, according to an analyst.

However, a “structural labor shortage” remains a major headwind, Powell noted in December, attributing the lack of workers to early retirements, caregiving needs, Covid illnesses and deaths, and a plunge in net immigration.

Monetary Policy Actions of the US Open Market Committee: 2008-2013, Scheduled for the next few months (with an appendix by Mike Powell)

The consumer has held up well over the past 18 months, and not pulling the rug out from under them is pretty much how you get to the soft landing.

The Federal Open Market Committee has eight meetings per year. The monetary policy actions that are announced to the public after the conclusion of the meeting on the second day are led by Chair Powell.

The meetings that are scheduled for next year are below. The meeting with the Summary of Economic Projections and thedot plot is for those who use antacids.

During this time, the stock market lost 20% of its value, as well as a third of it’s value. All three major US markets have had dire years in the last few years.

New numbers published last week show first-time applications for unemployment benefits edged up to 225,000. That’s still low historically and almost exactly where jobless claims were a year ago, long before recession fears emerged.

Gas Prices in the United States, and Why Did the Fed Overdo It Last Recession Spiked Above $5 a Gallon?

After spiking above $5 a gallon for the first time ever in June, gas prices have plunged. The national average for regular gasoline went from $3.10 a gallon to about $3.22 a gallon recently, but it hasn’t gone down much in recent days.

The fear is that the Fed will eventually overdo it, raising rates so high and keeping them there for so long that it causes a recession — if the Fed hasn’t already done that.

The economic growth that takes place in a slowcession never slips into reverse, said Moody’s. Unemployment would rise, but not spike.

Wolfers says inflation has fallen since jobs were booming. The soft landing, he says, has landed.

The US economy has a healthy balance sheets, profitable businesses, and a banking system that is on solid financial ground, according to Mark Zandi.

Swelling real estate markets or huge asset bubbles were seen before the last recession, but the economy is not plagued by those issues today.

Wall Street and Wall Street Trading in the New Year: Predicting the Decline of the Inflaton and Fed Rate Increases with Wall Street

Wall Street will get the last jobs figures for 2022 on Friday morning. The US government is expected to report that 200,000 jobs were added in December, according to forecasts of economists surveyed by Reuters. That would be a slowdown from the 263,000 jobs added in November.

Traders are betting on a further deceleration in jobs growth because that could lead to a reduction in the size of interest rate hikes by the Federal Reserve.

As of late, traders have been paying more and more attention to economic reports and the stock market has been choppy based on the latest inflation figures.

Wednesday’s weaker than expected report on the health of the manufacturing sector, coupled with more signs of strength in the jobs market given the solid report about labor turnover, led to more market volatility.

The weekly jobless claims numbers are due out Thursday morning, as well as a report from payroll processing companyADP about the private sector job market. Further strength could set off more alarm bells about inflation and Fed rate hikes.

Wall Street will also need to dive even deeper into Friday’s jobs report to get a better sense of what’s happening in the economy. The unemployment rate is expected to remain at 3.7%, close to a half-century low.

“The persistent mismatch between labor supply and demand continues to put upward pressure on wages,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments, in a report.

In other words, the Fed is likely to focus more on worker paychecks in Friday’s jobs report than the number of jobs added. Wall Street could do the same.


Why are tech companies hiring? An investor’s perspective on the economic and financial downturns in Europe, as noted by CNN’s Anna Cooban

As my colleague Catherine Thorbecke reported, Salesforce joins a growing list of major tech firms that have recently announced job cuts, including Amazon

            (AMZN) and Facebook owner Meta Platforms. Amazon

            (AMZN) confirmed late Wednesday that it was laying off more than 18,000 employees.

As the economy rebounded from a brief recession in 2020, there was hope that businesses and consumers would continue to use tech products and services.

Tech companies know that inflation and rate hikes may affect their budget plans as recession alarm bells are sounding again.

“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing,” said Salesforce chair and co-CEO Marc Benioff in a recent note to employees.

The companies that last a long time go through different phases. Andy Jassy, the CEO of Amazon, said in the memo that they are not in heavy people expansion mode every year.

The global economy is clearly not out of the woods. Many, including the head of the International Monetary Fund, are still concerned about a looming downturn that could hit China and emerging markets particularly hard.

But CNN’s Anna Cooban notes that investors in Europe appear to be growing more hopeful that the pace of consumer price increases is starting to slow in France and Germany. A drop in energy prices is leading the pullback.


Real Estate Market Affordability in the 21st Century: Consumer Expectations, Real Estate Ratios, and Mortgage Rates

The British Retail Consortium said in a report Wednesday that food prices surged 13.3% in December. Meanwhile, data analytics firm Kantar noted in another report that UK grocery sales hit a record during the four weeks ending on December 25, even though the number of items that consumers bought fell 1% during the same period.

There is a chance that the real estate market will return to its normal months, in which inventory tends to rise in February and continue through the summer. In May and June, prices peak and sales tend to decline until the end of the year.

“Mortgage rates are really critical to the path of the housing market in the year ahead,” said Jeff Tucker, senior economist at Zillow. “We are watching to see affordability gradually improve. That should breathe some life back into the market.”

Tucker said that there was no surplus of homes for sale in the market. “That is the main thing that is buffering us from runaway price declines.”

More inventory would be available from locked-in homeowners who have maintained their ultra-low mortgage rates for the past couple of years.

“Half of the country may experience small price gains, while the other half may see slight price declines,” said Lawrence Yun, NAR chief economist. The markets of California may be the exception, with San Francisco likely to register a 10%- 15% price drop.

As a result, the search for affordability is leading many would-be homebuyers toward lower-priced metro areas where the cost of a house can fit within more families’ budgets, said George Ratiu, manager of economic research at

“Markets like Manchester, New Hampshire; Columbus, Ohio; Fort Wayne, Indiana; Hartford, Connecticut; Lancaster, Pennsylvania; or Topeka, Kansas are still seeing homes change hands as buyers from more expensive locations are lured by solid local economies and median prices, which in some cases are still below $300,000,” Ratiu said.

Mortgage rates tend to track the yield on 10-year US Treasury bonds. When that rate goes up, the 30-year fixed-rate mortgage typically goes up, too. Mortgage rates also go down when the Treasury rate goes down.

In November, the monthly mortgage payment fell to $2,012 from $2,012 in October, according to the Mortgage Bankers Association.

After the 30-year fixed mortgage rate eclipsed 7% in late 2022, Yun said he expects that to settle at 5.7%, as the Fed slows the pace of rate hikes in response to slowing inflation.

The Mirror Image of 2022: Real Estate Buyers and Builders in a Stochastic First Quarter of the Year 2022-2019

In 2023, we may see a mirror image of 2022 — a somewhat trying first half that gives way to a surprisingly strong back half of the year for buyers, said Leonard Steinberg, corporate broker at Compass in New York.

“The would-be buyers that stepped back from the market in late 2022, can’t and will not stay away forever, especially given the competing demands from first-time buyers looking to get into the market and retirees looking to move or downsize.”

As builders struggle with the challenge of balancing the need for more housing with a decline in demand, chronic under- building of new homes is likely to stay a challenge across all segments.

“The spring market will be busier and more competitive, for buyers, while the next two months will be the calm before a more hectic time,” said Tucker.

“The big surprise for a lot of people might be that the market has a really boring year,” said Tucker. “It would be a great change of pace. A boring, uninteresting year in the housing market would be great.

We’re in the salad days of the New Year — that period where many feel refreshed and motivated and perhaps even optimistic about the year to come. There’s a certain clarity that comes during this time in January.

It has been jobs this week as investors eye a slew of data showing a strong labor market that is resistant to the Fed’s attempts to cool the economy.

In order to maintain the labor market’s resilience, the Fed should increase rates this year, according to the International Monetary Fund’s second-in command, Gita Gopinath.

Will wages moderate this year? Analysts at Goldman Sachs predict that they will. Wage growth is forecast to slow from nearly 5% in 2022, to about 4% by the end of this year, as unemployment grows.

The Future of Retail Markets: How Do Consumer Prices Have a Role in Predicting the State of the Economy? A Comment from Bank of America CEO Brian Moynihan

According to Brian Moynihan, CEO of Bank of America, the US consumer’s continued strength is helping to staving off a recession.

But weaker-than-expected retail sales in November pummeled market sentiment last month and raised the odds that the Fed’s punishing interest rate hikes would push the economy into recession.

This is the biggest question investors will have this year, and the answer will help determine what happens to markets this year, as well as whether the economy will fall into recession.

And while officials welcomed softer inflation reports in recent months, they stressed that “substantially more evidence of progress” was required and said that inflation was still “unacceptably high.”

There is “substantial doubt about the company’s ability to continue” because of its worsening financial situation, the home goods chain said in a regulatory filing.

The analyst at Global Data Retail said in a note to clients Thursday thatBed Bath & Beyond is too far gone to be saved. “All of this points to bankruptcy as being the most likely outcome.”

I have written about the economic perception and reality discrepancy before. In the past, however, I got a lot of pushback from people insisting that the public was in deep shock over the resurgence of inflation after years of more or less stable prices.

At this point, however, that’s becoming a harder position to sustain. Prices of items, notably of eggs, have soared since last summer, but gasoline prices have plummeted. As I said, the overall inflation rate in the second half of 2022 was around 2 percent, which has been normal for the past few decades, while the unemployment rate in December, at 3.5 percent, was at a 50-year low. Oh, and inflation-adjusted wages, which fell in the face of supply-chain problems and the Ukraine shock, have been rising again.

When workers are paid more for their work, the prices they pay will go up. Think about jobs like haircuts, electrical work and gardening. Those prices are typically less volatile than food and energy and can better indicate the direction of prices in the US economy.

The Fed Chair said that core services that don’t include housing could be the most important category for understanding the future evolution of core inflation.

Over the past year, an alphabet soup of otherwise wonky economic statistics have become household names as American families suffered through the worst inflation in 40 years: CPI (Consumer Price Index), PPI (Producer Price Index), PCE (Personal Consumption Expenditures and ECI (Employment Cost Index).

Each of these reports has shown how prices for food and fuel and housing have risen much faster than wages for most of the past year, driven by huge consumer demand coupled with supply chain snags and the war in Ukraine.

“The Fed focuses on supercore because it includes those prices that are more likely to be driven by the cost of labor, which the Fed can more directly impact through changes in interest rates,” he said.

While it is useful for economists to look at the drivers of inflation, it isn’t practical to take out volatile categories like housing, food and energy.

There is a chance that January’s core rate could be worse than expected. Some December headlines wererosy because of falling gas prices.

The Why Is There a Relatively Unprecedented Recession? Analytical Analysis of the U.S. Economy

The economy gets smaller during a recession and less stuff is produced. Normally, when that’s happening, you feel it, people get laid off, businesses shut down and everything starts going on super sale.

Jobs and unemployment data, as well as data about prices, debt and credit, are the most important numbers.

Raguhram Rajan is a professor of finance at the University of Chicago’s Booth School of Business. “This situation is relatively unprecedented.”

Inflation is the root of the confusion. Last year, as inflation rose, the Federal Reserve took action to bring prices down by raising interest rates.

Raising interest rates is intended to slow spending. Businesses and people borrow less, spend less and buy less when the interest rate is higher.

Peterson says she’s looking at housing permits, consumer confidence, manufacturing data, factory orders and consumer spending, among other things. And a lot of those indicators are hinting at a recession.

Peterson points to the tens of thousands of layoffs we’ve seen this year; the rising price of basics like food, electricity and gas; the rising credit card debt we’re seeing; and the fact that consumers spent less than expected during the all-important holiday shopping season.

The reason? Because it was so difficult for companies to find workers for so long they aren’t planning to lay people off like they might in a typical recession. This recession may not look like other recessions.

Or there may not be a recession at all. The economist at the University of Michigan, Justin Wolfers, says all of the recession talk he’s been hearing seems absurd.

Wolfers thinks a soft landing in our country’s future is possible, but not enough so that companies will be losing money and shrink.

“Right now we’re celebrating unemployment being at a 50-year low, at 3.4%,” he says. These levels were once said to be impossible by earlier generations of economists.

Wolfers points out that the job growth is almost miraculous since it was only three years ago that the economy suffered a big blow from the swine flu.

I wouldn’t have supported it if you had said, “In three short years, we’ll yield an unemployment rate you’ve never seen before” as the world was closing down.

If layoffs occur companies will start to relax about finding people to fill jobs, and it might change really fast.

“If firms look around and say, ‘Hey, it’s not that difficult hiring anymore and we’re holding onto these people… Why don’t we clear the deck also,’ and everybody gets that idea at the same time. Hundreds of thousands of people could lose their jobs at one time, he says.

The risk is similar to the old Wile E. Coyote cartoons. He was running off the edge of the cliff, but he hadn’t realized he was over the cliff, so he fell.


What Do We Expect to Learn About the US Economy in 2023? A Survey of Behavioral Economics Perspectives from the 1990s to 2023

“The economics we learn in school is neat and clean,” says Dana Peterson. “It doesn’t assume that you have shocks or labor shortages. Those are things that economic models can’t always handle.

In a time when the economic data has delivered mixed messages or flat out busted expectations, economists’ predictions for the year ahead are growing increasingly opaque.

The National Association for Business Economics’ latest survey, released Monday, shows a “significant divergence” among respondents about where they think the US economy is heading in 2023, the organization’s president said.

Estimates of inflation-adjusted Gross Domestic Product, inflation, labor market indicators, and interest rates are all widely differing due to a variety of opinions on the fate of the economy.

“Panelists’ views are split regarding how high the Federal Reserve may raise interest rates, how long rates might stay at the peak, when cuts would begin, and what would signal the central bank’s actions on each of these fronts,” Dana M. Peterson, NABE Outlook Survey chair, and chief economist at the Conference Board, said in the report. The impact of the debt ceiling and China reopening on global inflation are two things that the respondents are concerned about but they don’t agree on.

They don’t expect the downturn to fall into “bust” territory. A mere 2% of respondents said that a “housing market bust” was the greatest downside risk to the US economy in 2023.

More than half the people said the biggest downside risk was too much monetary tightening. The broadening of war inUkraine was 12%, trailing far behind in second.

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