Economy needs higher oil prices: Goldman Sachs

OPEC is closing in on a deal to cut production, which will surely cause oil prices to rise. Oil is already almost back to $50 per barrel, so cuts of nearly 1 million barrels per day could boost prices well into the mid-$50s, even up towards $60 per barrel. That will provide a windfall to oil producers around the world and the sacrifice for OPEC members will be more than paid for by higher revenues. For example, Iraqi officials say that for every $1 increase in the price of a barrel of oil, their revenues jump by $1 billion per year.

As a result, the odds of rising crude oil prices are high. But while that could be welcomed by the industry, consumers might not be as excited to see cheap gasoline disappear. After all, U.S. motorists have enjoyed two years of incredibly cheap fuel. Will rising oil prices put a dent in already tepid U.S and global economic growth?

Goldman says that the surplus in savings outside the U.S. ballooned from $1 trillion to $7 trillion between 2001 and 2014, pushing up asset prices. Of course, that can also have a darker side – asset bubbles in commodities as well as housing also led to widespread financial ruin.

All in all, the research from Goldman Sachs suggests that, while it may not be obvious to individual consumers who see higher prices at the pump, there could be a boost to the global economy in the coming months if oil prices rise.

http://www.usatoday.com/story/money/business/2016/11/26/economy-oil-prices-goldman-sachs/94431546/

The Business Case Against Scrooge

Holiday shopping is where businesses capitalize on profit. Even Scrooge would be envious of the amount of money big conglomerates rake in. “I still believe in the Holy Trinity, except now it's Target, Trader Joe's, and IKEA,” said Jen Lancaster. This year, U.S. retail sales are expected to increase 3.6% over the months of November and December.¹ Store can accumulate a total of $655.8 billion in sales. After so much talk about interest rates and economic stagnation, people are still spending.

The increased shopping has retailers forecasted to hire between 640,000 to 690,000 seasonal workers this year.¹ In 2015, retailers employed 675,300 people for the holidays.

U.S. online sales are projected to grow between 7% and 10% this year to $117 billion. Online shopping has contributed in the seasonal shopping adding to multiple outlets to shop and a variety of products to purchase. Options are now global as well as open 24/7.

Overall global cross-border online sales are expected to hit $1 trillion in 2020.¹ In 2014, total sales were $230 billion, which means cross-border retail purchasing could more than quadruple.

Online shopping is the main driver of growth in European (and British) and North American retailing. The Internet is helping propel economies to vast heights. Consumers are now more than just domestic, but international. The global online retailer industry is helping shipping industries like Amazon and Alibaba accumulate a lot of wealth.

The holidays continue to bring people together, and across retail, travel and food. While customers consume various products, firms fill their pockets with lots and lots of money.

References: The Business Case Against Scrooge

Black Friday

     Huge discounts are prominent across the board in department and retail stores.  However, many Americans are faced with the challenge of waiting in long lines for an extended time.  Then once in the store, the inventory is not filled to maximum capacity because firms are trying to sell all of their goods in preparation for next years line up.  Currently technology has come up with a solution to combat the problem of missed goods which the public desires because due to product leaving shelves at exponential rates.  Now many shoppers are ordering their goods via internet and on their smart phones to avoid the crowd.  According to Craig Johnson, president of a research firm called Customer Growth Partners, he has estimated that Americans will spend $27 billion on Black Friday which accounts for 4.3% of spending this season.  

     Yet, people are expected to spend $632 billion this season whereas $607 billion was spent last year.  The majority of this growth is actually coming from online sales which has never happened before.  Who is mainly shopping online?  People ages 18-34 account for 40%  and 35% of the same age group shop both online and in the stores.  The baby boomers do there shopping by physically waiting in line and spending at the stores.  What goods are expected the be purchased?  Mainly electronics, televisions, and headphones are expected to be purchased from big names such as Walmart and Target.  Using the internet to purchase goods is a better alternative rather than waiting in line and setting up a tent outside thus hoping to get the best deal.

http://www.nytimes.com/2016/11/23/business/economy/a-less-frenzied-black-friday-as-millennials-opt-to-stay-in.html?ref=business     

Does the Fed Want to Raise Rates?

     Before the presidential election, Federal Reserve officials held a meeting discussing whether or not they should raise rates.  Currently rates have been relatively low at 2%  in order to stimulate the economy by encouraging both domestic and international investment.  However, the Fed thinks that the economy is ready for higher rates.   As a result the Fed has concerns for an extended low interest period due to a misallocation of capital and mispricing of risk.  Janet Yellen believes raising rates is the best course of action for the future of the economy.  Two other federal officials believe that raising the federal funds rate is the right alternative as well.  How do consumers feel about an increased rate?

     Due to the shift in monetary policy, it is likely that consumption will decrease and saving can increase.  Also investment will be affected but, the big question is how will this affect our GDP?  Earlier in the year inflation increased  but it did not go above 2%.  We can see a correlation with a decrease in energy prices and non-energy imports as well.  The Fed has kept there benchmark rate between .25% and .5% but, this action may encourage higher risk taking and borrowing.  The next meeting is scheduled sometime in December and right now the chance of the increased rates seems to be the direction which our country is going in.

http://www.nytimes.com/2016/11/23/business/economy/federal-reserve-interest-rates-meeting-minutes-yellen.html?ref=business

Mortgage Rates in the U.S.A.

     Ever since the 2016 presidential election, mortgage rate payments have increased from 3.8% to 4.3% which adds thousands of dollars to the initial outlay of a home.  Many Americans are uncertain of what is going to happen in the housing market if rates continue to increase.  Are we already in the housing bubble? This fear  is making families and mortgage brokers very nervous.  Lenders and borrowers are in a difficult position as well.  If the rates continue to increase borrowers may not be able to pay back the loan with the additional interest.  Loaners such as banks like Wells Fargo might not be able to collect their full payments and will unfortunately have to seize assets such as homes and securities in order to liquidate them into cash.    

     As a result the cost of purchasing a home is becoming even more expensive.  Thus young adults graduating from undergrad or graduate programs may want to continue living in apartments and condo's rather than renting and buying homes.  Also international investment is more risky for the housing market because less interest rates are increasing substantially over a short periods.  A Real estate brokerage firm called Redfin forecasts that rates will stay below 4% for short term house investments however, this is clearly not the case as we approach the end of the fourth quarter.  If rates continue to increase, The Federal Reserve may have to raise borrowing cost at which local banks loan to families for house payments.

http://www.nytimes.com/2016/11/23/business/economy/mortgage-rates-rise-catches-home-buyers-and-lenders-off-guard.html?ref=business  

Janet Yellen: Rate hike could come "relatively soon"

Last Thursday Nov. 17, Federal Reserve Chair Janet Yellen testified at a joint Congressional meeting. She began her comments by saying "the case for an increase in the target range had continued to strengthen." This is the first time she has spoke to the public since the election. She noted that the job market maintained momentum this year and wage growth is starting to pick up. Yellen believes inflation is slowly moving in the right direction and low wages in the main reason why many Americans continue to feel left out of the economic recovery. In December of last year, the Fed targeted a higher interest rate for the first time in almost a decade.

Some economists are saying that Trump's large government spending plans could force the Fed to raise interest rates.The Fed has been under criticism by not only Wall Street investors, but also president elected Donald Trump for not increasing the rate already. At the beginning of 2016, Federal officials estimated they would raise interest rates four times. According to CME Group, investors say there is an 85% chance the rate will increase again in December.





http://money.cnn.com/2016/11/17/news/economy/janet-yellen-fed-rate-testimony-congress/

Ford plant moves, what the real US job impact?

Recent confusion between president elect, Donald Trump, and chairman of Ford, Bill Ford made it sound as if Ford was moving a plant from Kentucky to Mexico to specialize the plant in Kentucky and hopefully increase overall production due to a greater productivity factor. However, after looking a little deeper this decision was reversed, not by persuasion of Trump. Trump threatened to impose a 35% tax on cars imported from Mexico in criticism of Ford possibly moving production of small cars to Mexico claiming the impacts on the US job market would be devastating.
Ford came back to say that their plants are currently working at full capacity estimating that they produce between 200,000 to 250,000 cars per year and that by moving production of smaller or more luxurious (slower selling with lower profit margin) cars out of the country where labor is cheaper would not affect US jobs at all. Bill Ford's argument is that US factories would move to producing a higher volume of more expensive and better selling cars such as their trucks and SUVs. He goes on to argue that this would in fact benefit the US economy because of the higher GDP from production of more expensive goods. This offset should not impact US jobs, but what is the real affect?

http://www.nytimes.com/2016/11/19/business/ford-move-cited-as-victory-by-trump-has-no-effect-on-us-jobs.html?ref=economy&_r=0