Looming railroad strike could cripple US economy

    A looming railroad strike could hurt the United States' supply chain and transportation rail service if both parties do not agree by the end of the week. Workers are seeking improvements to working conditions, even though the National Carriers' Conference Committee (NCCC) states that rail employees are provided "significant" time off and that companies have already have been offered a wage increase. Labor Secretary Marty Walsh will be meeting with rail company officials and union leaders to help them reach an agreement.

    Out of the 11 unions, two holdouts could lead to a future strike as the two consist of roughly half of all rail workers. A third holdout union turned down a deal with the NCCC and will strike in two weeks if an agreement is not met. A potential strike could lead to a loss of $2 billion of lost economic output per day. Freight railroads are responsible for carrying 40% of the nation's freight and work stoppage could jeopardize these shipments. 

    If a strike does happen, Americans will feel the effects. The effects could assist of everything from the potential for layoffs to empty shelves to continued inflation. Chief economist at KPMG, Diane Swonk, revealed that this strike situation could add another layer to a slowing economy would put the American people in a very bad place. 

    Unions still negotiating are continuing to call for better time-off policies for their workers. Railroad companies are routinely penalize workers for taking time off for sickness or a doctor's appointment. Unions have reported that these policies have forces thousands of employees out of the industry and make it tough to recruit new workers. The Biden administration has issued recommendations for a compromise between parties that include a pay rise and bonus increases, but they excluded the demand for the union's time-off policy. President and members of congress have introduced resolutions that could end any potential strikes.

https://www.msn.com/en-us/news/us/looming-railroad-strike-could-cripple-us-economy/ar-AA11PRYo

10-Year Treasury Yield Hits 3% for The First Time Since 2018

 

The 10-year Treasury yield reached 3% for the first time since late 2018. And as we know, bond prices and yield are inversely related, when treasury yield rises the bond prices fall. The borrowing cost from mortgages to student loans last closed above 3% in November 2018, and since the last year, it has jumped 1.49%. Corporate bonds and Treasury have slumped due to the increase in the interest rate by the FED, in order to curb inflation. Rising yields are often associated with strong economic growth. In this case, inflation is on the rise and the labor market is tight, which is why the FED is rapidly increasing the interest rates.

 

 

https://www.wsj.com/articles/10-year-treasury-yield-hits-3-for-first-time-since-2018-11651511960?mod=hp_lead_pos2

GDP Falls and Concern Rises

 The first quarter of 2022 showed a drop in GDP of 1.4%, as many have pointed out, this has been the worst that GDP has been since the start of the Covis-19 Pandemic. This is in spite of the 6.9% growth we saw in the fourth quarter of 2021, so what happened?

Well there were a lot of factors. In the previous quarter there was a sharp increase in producing inventory, helping boost GDP, but in the first quarter inventory investment actually slowed down. The article does not directly address why this might be, and then it goes on to list how consumer spending as increased as well as investment in R&D by businesses. However, later in the article it does mention that while consumption is up, consumers are purchasing more services than they are products (Travel and hospitality is specifically mentioned in the article). This implies that the inventory that got stocked up in late 2021, isn't being sold as quickly as firms thought. So naturally they're decreasing the amount that they're producing.

With consumption increasing, arguably the most worrying thing at the moment is inflation. Prices are still increasing and it seems that consumers are still buying regardless of what the price is. There is legitimate concern right now that the higher rate of consumption now will result in consumers having less buying power later in the year as prices don't appear to be coming down anytime soon.

Since inflation is such a serious concern right now, that is probably the reason that the Federal Reserve is still planning on raising interest rates despite the drop in GDP. Unfortunately the thing we know for sure is that the economy is going to be rocky in the near future no matter what the Federal Reserve decides.

https://www.wsj.com/articles/us-economy-gdp-growth-q1-11651108351

Tech Stocks Sink Again, Nasdaq Has Worst Month Since 2008

    Friday, the Dow Jones Industrial Average fell more than 900 points. This was influenced by the decline in technology stocks, which left the S&P 500 with the largest drop since the start of the corona virus. Following that Amazon had a major shift in their stocks and in there market causing them to have a loss of around 200 billion dollars off their market value. This left the S&P 500 with an 8.8% loss in the month of April.

    The Dow Jones Industrial Average and the S&P 500 are all included in the Nasdaq Composite, which is heavily weighed with the technology stocks. This means that the decline affected the Nasdaq Composite the most making it the worst loss in a month since October 2008, during the financial crisis. While the stock continues to plunge, we will continue the market sell-off in the economy.

https://www.usnews.com/news/business/articles/2022-04-29/asian-shares-jump-as-chinese-leaders-pledge-help-for-economy

https://www.forbes.com/sites/sergeiklebnikov/2022/04/29/nasdaq-posts-worst-month-since-2008-and-dow-plunges-900-points-market-sell-off-continues/?sh=43a8d4764f8c

Biden Potentially Forgiving Student Loan Debt

 President Joe Biden recently announced that he is looking to forgive all current student loan debt, valued at $1.6 trillion, the second largest debt held by Americans.  This would be incredibly beneficial for debt holders like myself and the millions of other students across the country, the recent pause on repayments by itself has saved Americans an estimated $5 billion a month on average.  A lot of Biden's supporters really empathize with this idea and Biden's team recognizes as well just how popular this idea is, it has evolved into one of the center pieces of his campaign for the future re-election.  We will see how this plays out, it could be very beneficial for Biden because he can easily secure many different groups of voters who support this but the inverse is also true, he could be scaring away potential voters who were on the fence between parties, especially those who tend to be more conservative.  The republicans will probably lobby whatever bill goes through congress so the best bet for debt cancellation is a slower more regulatory process, something that could bypass a lot of the legal challenges of this potential bill. 

https://www.cbsnews.com/news/biden-options-forgiving-student-loan-debt/ 

Rising Economic Fears

 The S&P 500 is heading for its worst monthly decline since March 2020. With interest rates and inflation rising this also raise concerns for consumer sentiment. A severe Covid lockdown in China and the invasion of Ukraine are adding to disruptions in the flow of goods across borders, contributing to rising food and energy prices, and threatening corporate profits. The index, down 5.4 percent for the month through Thursday, dropped another 2 percent by Friday afternoon. April was the third month of losses this year and stocks are now down more than 10 percent in 2022. Analysts say that Wall Street’s pessimism isn’t likely to end until the major concerns are resolved, and when that will happen seems impossible to know. What matters the most is the impact on consumers. Economists expect demand to slow as people face high prices and increased borrowing costs at the same time. "“The consumer is the main driver of the U.S. economy,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. “So how the consumer goes, so goes the economy.” Ms. Bostjancic said that as the Fed continues to raise rates this year and into next year, “we see more vulnerability for the consumer and risks of a consumer pullback rise.”:

Russia may be in default

 The sanctions placed on Russia since the start of the Ukriane conflict include the freezing of Russian assets outside of Russia. This consists of significant dollar reserves spread in banks across the world. Like most countries Russia has to make regular payment on bonds issued by the government. Since Russia is not allowed to access it's foreign assets many question whether they will be able to pay their dollar denominated bond obligations coming up in the near future. They could dip into domestic dollar reserves to make these payments which means less funding for the war in Ukraine, as the sanctions intended or could try to make payments in rubles which are unlikely to be accepted. If the government does default, the question of how and when bondholders get paid becomes very important.

https://www.reuters.com/world/europe/moodys-says-russia-may-be-default-dollar-bonds-2022-04-15/

How Companies are Adjusting to High Levels of Inflation

     As we all know inflation is currently running rampant in the United States economy. Rich countries are facing producer prices that have soared to their highest rates in the last 40 years. Companies are also facing supply chain issues along with a myriad of other problems. The obvious way companies could combat these rising prices and inflation is by raising their prices but it doesn't seem to be that simple. A very recent example would be Netflix, which, tried to raise their prices in the midst of a streaming war and the ending results didn't bode well for them as they saw huge strong price drops and a surge of membership cancellations. So, if raising prices is off the table of most companies they have to turn to other options. One of these other options is using a term called shrinkflation. What this means is that companies are shrinking the products they sell and trying to rebrand them in a cool way that seems fresh and trendy to consumers. The companies can brand the shrinkage as environmentally friendly and it becomes a win-win for companies and consumers.

https://www.economist.com/business/2022/04/30/the-weird-ways-companies-are-coping-with-inflation

US GDP Growth Drops in First Quarter

Surprising almost everyone, data showed that U.S. GDP actually decreased 1.4% during the first quarter of the year. Are we looking at a potential recession? Anything is possible, but there's more to the story than just a drop in growth. Using data from 2018 to 2021, economists found that six states were already facing lagging growth, with Hawaii and Alaska leading the pack. Hawaii in particular continues to face challenges from low tourism.

Some states, however, have excelled. Utah, Idaho, and Washington have all grown faster than the national GDP rate, partially due to the rise in remote work. Warmer states like Utah, Idaho, and Florida have seen bumps in GDP, but at the expense of states like Maryland and Connecticut. This, coupled with increased tax revenues in Utah and Idaho, have spurred further growth in the west.

https://www.economist.com/graphic-detail/2022/04/28/americas-economy-unexpectedly-contracts-in-the-first-quarter

Investment Banks Slash Expectations for China's Economic Oulook

Strict lockdowns throughout major cities in China are causing problems for China's economy right now, and is predicted to have negative consequences in the future. Many businesses have been shut down for the past month, which has supply issues within these cities and outside of them. These lockdowns have no foreseeable end, which makes it hard to have clear predictions for its effects. However, the most common prediction that has been made is that the year end GDP will be lower than was initially predicted. Initially, the official government target for GDP growth was 5.5%, but the new median production from investment firms shows GDP growth at 4.5%. It is also predicted that investment and demand for goods, homes and durable goods will fall, because of people in lockdown having lower incomes, and overall uncertainty. I think it will be interesting to see how much longer these lockdowns last, and what the total effect on China's economy, and on other countries. 

 https://www.cnbc.com/2022/04/26/investment-banks-slash-china-growth-outlook-one-puts-gdp-below-4percent.html