College Students Continue to Take on Increasing Amounts of Student Debt

    College students are paying large amounts of money on their educations.  It is essentially investing in themselves because they hope to make more money from having the degree they paid for.  The modern American culture seems to highly promote this decision as the best way to beginning ones own career.  This would somewhat explain why students across the country are taking on more student debt on average.  Daniel Kurt, quoted the Federal Reserve, saying; "the average student loan debt reached a record high of $38,792 in 2020".  With so many people starting their career owing large sums of debt, either they risk not saving enough to have a healthy retirement, they declare bankruptcy, or they do not spend as much on other goods and services.  In any case, this student debt is forcing people to spend less money, and is hurting the economy overall.

    Some politicians, including Sen. Elizabeth Warren and Minority Leader Chuck Schumer have suggested cancelling some or all of this overwhelming amount of student debt.  While on paper it would bring more people into a position to spend money boosting the economy, it is not without its concerns.  Kurt describes a "risk of moral hazard" that some analysts are concerned about.  That is essentially the concern that people will in turn be less responsible for their actions, expecting that someone else with take care of their problems for them.  There are countless more potential risks and benefits of this student loan cancellation idea.

Kurt, D. (2022, January 1/3/22). Student Loan Debt: 2021 Statistics and Outlook. Investopedia. Retrieved January 29, 2022, from https://www.investopedia.com/student-loan-debt-2019-statistics-and-outlook-4772007#toc-economic-impact-of-debt-cancellation

U.S. Wages, Benefits Rose at Two-Decade High as Inflation Picked Up

The Federal Reserve emphasizing the need to keep an eye on inflation finds merit once again, this time in the form of wages and benefits for laborers throughout the economy. On a non-seasonally adjusted basis, compared to last year, this previous quarter saw a 4% increase in costs associated with wages and benefits. Unfortunately for consumers, it seems to be that firms are able to easily pass the increase in costs to consumers as December 2021 saw a 4.9% increase in the core PCE index. Through the same time window, average hourly wages rose only 4.7% compared to a year earlier. 

Economists cite multiple reasons for the current spike in inflation, which is the largest increase since nearly 1980. The most prominent sources are an overwhelmed supply chain, pressure on the supply side on commodities and labor, and an increase in wages coupled with the lowest unemployment rate we've had since before the pandemic. Jerome Powell noted that the Reserve is keeping an eye on rising wages and the increase in production we've been seeing. 

The effect of inflation on services, products, and wages are causing concern in financial markets as well. JPMorgan Chase & Co. saw a dip in stock on an announcement that costs will see an 8% increase in 2022. In the past month alone, the Dow Jones has experienced a dip of 4.8%. It is ever more important for the Fed to keep an eye on inflation at this point as wages are traditionally sticky downward, and if companies are passing on increased labor costs to consumers, it may be difficult to damper the increase in prices in the immediate future especially if as economists predict, we see a rebound in consumer spending in the first quarter of 2022.

U.S. Wages, Benefits Rose at Two-Decade High as Inflation Picked Up - WSJ

U.S. Economy Grows as Fourth-Quarter GDP Shows Strongest Year in Decades

In the fourth quarter of last year, the US economy’s annual rate was 6.9%. This means that the year had the strongest growth in almost four decades, which is impressive considering the pandemic-induced recession. The fourth quarter GDP increased from the third quarter GDP of 2.3%. This was due to households' increased spending and companies increasing their inventories after supply shortages. From the fourth quarter of 2020 to the fourth quarter of 2021, output increased by 5.5%. The last time the economy grew this quickly was in 1984 during President Reagan’s term. During this time, the economy was recovering from a recession and high inflation.

However, despite the growth of the fourth quarter, this year might only have a modest growth rate. On Thursday, stocks rose when the GDP report was released in the morning but then fell later that day. Most of the growth in companies was due to restocking inventories, which isn’t sustainable, so excluding inventory, output only grew at a rate of 1.9%. Also in the fourth quarter, consumers decreased their spending due to the new variant of Covid-19. Sales of durable goods, like cars, decreased in December as well. Even though the economy’s growth rate is not actually growing as much as 6.9%, the economy is still growing, just at a slower pace than pre-Covid-19.

https://www.wsj.com/articles/us-economy-bounced-back-q4-gdp-11643235508

How is Omicron Affecting the Global Economic Recovery?

When the news about the new Omicron variant came out, businesses and investors feared that we were about to go back to the days of the beginning of the pandemic. With the worrying of business restrictions caused an uncertainty in the markets in late November. Even though it has not been as bad as people thought in November the markets have been shaky not only because of Omicron, but also rise interest rates. The bank Goldman Sachs created a share price index for the European firms, of companies that have had difficulty during the pandemic such as airlines and hotels. This index shows there has been some "cautious optimism" as companies are not as anxious as before about the virus. 

Nicolas Woloszko, who tracks GDP index for OECD, has been tracking countries economics bas on their pre-pandemic numbers. He has seen that across "middle to high income" countries are about 2.5% below their GDP, which is better than the 5% in the early days of the pandemic.  This is a positive sign that economies are starting to recover to the way they were before the pandemic. 

So far most countries have not increased restrictions based on the Omicron variant and this is one of the reasons why there are not as many fears in a huge dip in the economy as there was at the beginning of the pandemic. The only "middle to high income" country that was under lockdown was the Netherlands and that ended on January 26th. Goldman Sachs compared how restrictions were imposed for the Delta variant versus the Omicron variant and the restrictions were similar even when there are almost five times the amount of people diagnosed with Omicron. 

This has caused a large number of people to miss work because of covid or taking care of someone with covid, the number is around 8.8 million in the United States at the start of 2022 according to the Census Bureau. This definitely has helped increase the numbers when it comes to the labor shortage. Although, the Omicron variant has caused issues firms do not seem too worried about its effects as most of the numbers in countries seem to be falling 

Article: https://www.economist.com/finance-and-economics/how-is-omicron-affecting-the-global-economic-recovery/21807361

Author: The Economist, Jan. 29, 2022 edition 

Commerce Dept. Survey Uncovers ‘Alarming’ Chip Shortages

The United States is facing an “alarming” shortage of semiconductors, a government survey of more than 150 companies that make and buy chips found; the situation is threatening American factory production and helping to fuel inflation according to the commerce secretary. She said the findings showed a critical need to support domestic manufacturing and called on Congress to pass legislation aimed at bolstering U.S. competitiveness with China by enabling more American production. 

While demand for semiconductors increased 17 percent from 2019 to 2021, there was no commensurate increase in supply. A vast majority of semiconductor fabrication plants are using about 90 percent of their capacity to manufacture chips, meaning they have little immediate ability to increase their output, according to the data that the Commerce Department compiled. The need for chips is expected to increase, as technologies that use vast amounts of semiconductors, like 5G and electric vehicles, become more widespread. The combination of surging demand for consumer products that contain chips and pandemic-related disruptions in production has led to shortages and skyrocketing prices for semiconductors over the past two years. Chip shortages have forced some factories that rely on the components to make their products, like those of American carmakers, to slow or suspend production which has dented U.S. economic growth and led to higher car prices, a big factor in the soaring inflation in the United States. The price of a used car grew 37 percent last year, helping to push inflation to a 40-year high in December.

The Biden administration has set up an early alert system to notify government and industry of impending chip shortages and convened company leaders to try to address the issue, among other actions. It has also welcomed industry investment while acknowledging that any new construction of chip manufacturing facilities in the United States will take several years and will not provide an immediate remedy to the shortages. Last week, Intel announced that it would invest $20 billion in a facility in Ohio, which would contain two chip factories and directly employ 3,000 people.

https://www.nytimes.com/2022/01/25/business/economy/chips-semiconductors-shortage.html
By Ana Swanson and Catie Edmondson (Jan 25, 2022)

Markets Predict that Fed Will Increase Interest Rate Soon

  Amidst high inflation and a strong job market, it is being predicted that at their meeting in March, Federal Reserve will agree to increase interest rates.  

As the pandemic winds down (hopefully), it is evident that it has had many effects on the nation's economy.  The government has put lots of funds into supporting markets in order to keep them afloat in these trying times.  However, "rapid wage growth" and the increase in prices of, well, everything is not something that the country can maintain in the long run of the economy.  

Interest rates reached almost 0% during the pandemic, stimulating the economy greatly.  People and businesses were taking out loans that they had to practically pay nothing for.  Jerome H. Powell, in a conference, acknowledges that all of these monetary policies moves worked and did what they were supposed to do.  However, it is now time to somewhat return to normal, especially with the great amount of inflation that we are experiencing.

Also in his conference, Howard Schneider questions Powell on Fed's plan regarding benchmarks of inflation; how rapidly will it occur and how much should people expect rates to go up by and when.  Powell did not have a response, and says that Fed will not have that response until they convene to discuss the interest rate increase in their meeting in March.  This is definitely going to be frustrating for many people and businesses throughout the US.  March seems like quite some time away, however uncertainty is never a comfortable feeling, especially when it comes to the future of your money and how you will have to spend it.

Craig Torres then asks the obvious: what are the risks?  Powell's first response is that there is always the risk that inflation will continue and move even higher.  On the other side, Powell acknowledges that the pandemic is not over, in fact there is a possibility that it can get bad again.  In that case, if there are more shutdowns with high interest rates, it will be difficult for business to stay afloat if loans are expensive to attain.

The major take away from this conference is that the raising of interest rates and what will come of it is going to be a long run game, however frustrating that is.  There is quite a bit of uncertainty and Americans are going to have no choice but to trust Monetary Policy to achieve its goals in the long run.  We do know one thing: we cannot live in a pandemic-ridden economy forever, and Fed is going to do all they can to balance it out for us in the future.

Smialek, J (2022, January 26). The Fed, citing high inflation and a strong job market, signals rate increase

      'soon'. Daily Business Briefing. https://www.nytimes.com/live/2022/01/26/business/fed-rate-decision-

      stocks-inflation

 

Economics Blog Post #1: Impact of Covid-19 on The Food Industry

The Covid-19 pandemic has proved to be detrimental to numerous areas of the United States economy. From the automotive industry to the sanitation product industry, Covid-19 and the myriad of restrictions, lockdowns, and policies it has introduced into the United States have caused tremendous amounts of shortages and price fluctuations. However, one industry that has been hit particularly hard by the pandemic is the food service industry.

The reason this industry has been hit harder than others is because of the nature of the economic “hiccup” that is occurring at the moment, which is a pandemic. Unfortunately for the food service and production industry, many of the ways in which a pandemic is combated prove highly inconvenient for them. Restrictions on the amount of people that can be seated in a restaurant or place of business was reduced, the number of people physically leaving their homes and purchasing food was reduced, and the number of workers across all industries was greatly reduced, leading to a trifecta of food industry-damaging events.

On a more specific note, COVID-19 resulted in the movement restrictions of workers, changes in demand of consumers, closure of food production facilities, restricted food trade policies, and financial pressures in food supply chain.

Fortunately, there are ways that the businesses and consumers of this industry could be protected or aided so that they are not too economically harmed too badly by the end of the pandemic, economist and food afficionado Serpil Aday writes on this topic in greater detail.

“Therefore, governments should facilitate the movement of workers and agri-food products. In addition, small farmers or vulnerable people should be supported financially. Facilities should change the working conditions and maintain the health and safety of employees by altering safety measures.”

https://academic.oup.com/fqs/article/4/4/167/5896496

 (Zach Smith, 1/26/2022)

OPEC's Shrinking Capacity Could Raise Oil Over $100 a Barrel.

 International oil cartel, OPEC, is facing shrinking capacity levels due to events on the world scale. These events focus mainly on the increasing tension due to a border dispute between Russia and Ukraine. These two Eastern European countries provide major amounts of oil supply into the world market. Thus, broader geopolitical tension can greatly impact the world's supply of oil at large, raising prices by large margins. Global demand for oil is projected rise much higher than pre-COVID levels. Low capacity and low upstream investment is also setting global oil prices to increase.

Americans will feel this far away dispute directly in the price they pay to fill up their cars. OPEC has a major influence on the world supply and price of oil. Domestic production is notable in America, but the combines power of OPEC is massive. With such major countries of production as; Saudi Arabia, The UAE, Russia, and Kuwait, OPEC's power is immense. For the average American consumer, already suffering through uncertain economic times, this adds more qualms and anxiety. Many will look towards the Federal Government and the FED to buffer these increasing blows to the economy.   

Source: https://oilprice.com/Energy/Oil-Prices/OPECs-Shrinking-Capacity-Could-Send-Oil-Above-100.html 

Omicron’s Economic Toll: Missing Workers, More Uncertainty and Higher Inflation (Maybe)

Although the holiday spike in Covid cases, due to the contagious Omicron variant, have started to dip, its economic impact has brought more unpredictability to an already battered, albeit recovering, economy. Economic forecasters cut back on their estimates of Q1 economic growth, as stock markets went into a frenzy this Monday following expectations of more aggressive contractionary policy from the Federal Reserve. Even with these looming warnings, economists are still out concerning the long term impact of Omicron's winter spike.

As nearly 8.7 million Americans were forced to stay home due to Omicron in late December and early January, unemployment in the month of December numbered 3.9%, well within what we normally assign to "full employment". What gives? Despite Omicron's ability to sweep through industries like air travel and retail, it appears that firms are still willing to hire more workers. Jason Furman, an economic advisor to President Obama, believes that "...employers are holding on to people because they expect to be in business in a month," hinting that Omicron's impact on the labor market may be temporary.

The two words everyone may be tired of hearing - the supply chain - also continues to put pressure on the economy. In fact, it's possible that it's gotten worse - remember that Omicron took out 8.7 million workers, meaning that some of them certainly could not assist in easing supply pressures. However, that also means that that's 8.7 million people who aren't going out spending money in retail, or on dining, and so on. One theory, advocated by the authors of the article, argues that because of this short term inflationary pressures will decrease as people spend less, but long term things will pick back up again for the worse.

Perhaps the worst consequence of Omicron is that economic uncertainty is brought back once again to the forefront. As many of us hoped to enter the new year with the worst behind us, Omicron reared its ugly head and brought back the anxieties of the Delta wave. Economies generally prefer stability to instability, and it seems clear that Omicron brought more instability at one of the worst times.

https://www.nytimes.com/2022/01/24/business/economy/omicron-economy.html

Federal Reserve Expected to Raise Interest Rates in Fight Against Inflation

Inflation has threatened the U.S. economy by driving the cost of living and overall prices up at an alarming rate and it has caused the Federal Reserve to consider raising interest rates for the first time in three years to fight against inflation. Most central bank officials are in favor of rising interest rates. There are also economists that are concerned that the FED has been acting too late to combat/prevent high inflation rates while others believe the FED could possibly be acting too aggressively. Many economists argue that the interest rate hikes can cause the economy to dive into a recession due to borrowing being more expensive for consumers and businesses which causes the economy as a whole to slow down. The speculation of interest rates possibly rising has caused a huge sell off (correction) in the stock market to occur. Specifically, the S&P has been hurt very hard causing people to become bearish about the future. Hawks and Doves normally disagree with their stance on interest rates, but the Doves have started to favor higher interest rates due to the situations we are under with our economy. Economist Mary Daly states “I definitely see rate increases coming, as early as March, even,” Daly said in an interview with PBS. “Because it really is clear that prices have been uncomfortably high.” 

Interest rates have played a big role in the problems and solutions of the economy. The low interest rates that we have had during the pandemic have caused consumers and businesses to take out more loans and use them to invest and grow their wealth. Low interest rates and the stimulus checks jump started the economy because they contribute to an increase in spending and GDP. But, the growing circulating supply of money has caused inflation to rise at an alarming rate. The FED’s possible decision to raise interest rates, however, can slow down the inflation rate, but hurt the production of the economy which will lower GDP. Relatively less money is in the economy when interest rates are risen which limits spending. Overall, an increase in interest rates can possibly cause the U.S. economy to be negatively affected even though inflation could possibly be contained.  

https://www.pbs.org/newshour/economy/federal-reserve-expected-to-raise-interest-rates-in-fight-against-inflation 

IMF Cuts Global Growth Outlook for 2022

The International Monetary Fund (IMF) has decreased its global growth forecast for 2022 because of rising COVID-19 cases due to the Omicron variant, as well as supply chain issues and high inflation due to the pandemic. The IMF now expects global GDP to decrease from 5.5% in 2021 to 4.4% in 2022, a .5% decrease from their previous estimate. 

This revision is also because of slowdowns in the two biggest economies in the world: the United States and China. The United States is now only estimated to grow around 4% this year, which is 1.2% less than previously estimated, and China is only expected to grow 4.8% this year, which is .8% less than estimated before.

But, the IMF does currently predict that the economy will improve throughout the year and into 2023, and is now estimating that the global economy will grow 3.8% in 2023, .2% higher than their last estimate. This is dependent however on vaccination rates improving around the world, and better health care for people who fall ill with COVID-19. If these things don’t happen, the growth outlook for 2023 may also fall in the future.

https://www.cnbc.com/2022/01/25/imf-cuts-global-growth-outlook-for-2022-us-and-china-recovery-wanes.html

New Covid-19 wave

 The first case of the Omicron variant of COVID-19 was discovered on November 24, 2021, in South Africa. In order to prevent the spread of infection, some European countries and the United States immediately banned flights from certain African countries. Some forecasters expect January to show the first negative coefficient rate in employment in more than a year. Manufacturing production and retail sales fell in December. Constance L. Hunter, the chief economist for KPMG, said, "Those are Omicron's fingerprints. It will slow growth at the beginning of the first quarter." A pandemic could force consumers to pull up their spending. Especially now, due to the closure of most of the government programs. Another worry is that Omicron could challenge the supply chain both in the United States and overseas. This would prolong the recent bout of high inflation and put pressure on the Fed to act. Around 8.7 million Americans were not working in late December and early January because they had COVID-19 or were caring for someone who did. Another 5.3 million were taking care of children who were home from school or daycare. The overall impact is greater than at any other point in the pandemic.

When the first hit of COVID-19 came, it was a shock to both supply and demand, as well as to householders and firms. With each wave, businesses and consumers learn to adapt. If Omicron continued on the same pattern, limiting the supply of goods and workers while doing little to dent consumers' willingness to spend, it could lead to faster inflation. 

https://www.nytimes.com/2022/01/24/business/economy/omicron-economy.html