U.S. economy appeared ready to surge, but Russia’s invasion of Ukraine could send Shockwaves (The Washington Post, February 25, 2022)

 Artice: U.S. economy appeared ready to surge, but Russia’s invasion of Ukraine could send Shockwaves (The Washington Post, February 25, 2022)

Russia is a major exporter of oil and natural gas. Some of its supply flows through Ukraine. Gas prices in the US have already risen recently but now with the Russian invasion of Ukraine, world leaders fear that prices will skyrocket in response. President Biden has pleaded with oil and gas companies to not exploit the situation for monetary reasons. 

Russia is the United States third largest supplier of petroleum products. On Monday, February 24, the average gas price was $3.54 per gallon in the US. One year ago it was $2.71. The question for the U.S.government is how to navigate the situation to not cause inflation in the U.S. from the situation across the ocean. President Biden has stated that Americans will feel the results of the conflict but he is hoping to control it as much as he can. The rest of the world is watching and trying to avoid major disruptions as well. If all of the major world leaders work together, perhaps they can prevent a major energy crisis happening around the world. 

Another negative result from the invasion is the potential of further supply chain disruptions. The Covid pandemic has wreaked havoc on the supply chain in the U.S. for the last two years. The Ukrainian invasion could make it worse. Ukraine exports wheat, fertilizer, corn, sunflower and grapeseed oil. They are also a major neon gas supplier to the U.S. These supplies along with the already computer chip disaster can add more stress to the supply chain all over the globe. These issues can have another impact on American prices and Biden is watching closely. His goal is to use American resources or use his power to eliminate federal gasoline tax temporarily. Not all congressmen are on board but as the war plays out, Biden will determine which direction he needs to lead the American people.

Bhattarai, A., Romm, T., & Siegel, R. (2022, February 28). U.S. economy appeared ready to surge, but Russia's invasion of Ukraine could send shockwaves. The Washington Post. Retrieved March 2, 2022, from https://www.washingtonpost.com/business/2022/02/25/economy-us-russia-ukraine-gas/

Economic sanctions on Russia

 With the recent invasion of Ukraine by Russia many of the NATO members, including the United States have decided to support Ukraine through economic sanctions to avoid any physical implications as much as possible. tithe United States targeted the Russian central bank, mostly through freezing their assets. This caused the ruble to drop 30% relative to the United States dollar. In an effort to mitigate the damage of these sanctions the Russian central bank doubles interest rate to bring in more investment. Russia has a $640 billion stock pile of cash and at least half of that was frozen. This is causing a lot of unrest in the Russian public leading everyone to try to withdraw their money all at once which could have even worse impacts on the economy in Russia. One of the major implications is the price of imports in Russia is soaring which will lower the standard of living. Russia has been preparing for instances such as this by making a lot of their food production domestic, but the farmers that produce this food most likely won’t be able to get new equipment or fix old equipment which could make the measures taken by Russia virtually useless. China could offer support to Russia by letting Russia sell all of their exports to them but they haven’t done so showing that maybe the alliance isn’t very strong.

U.S. Treasury wants to reform domestic alcohol market

Over the past decade the alcohol industry in the United States has grown at a rapid rate, with it the culmination of thousands of new breweries, distilleries and wineries as well as micro versions of these kinds of producers.  However, there has been much “exclusionary behavior” by the two biggest brewers in the U.S. (Anheuser Busch InBev, Molson Coors) influencing gatekeeping behavior in essential distributors and retailers nationwide.  Complicated state to state laws and federal regulations also inhibit smaller producers to grow, some enactments even dating back to the 1930s during the prohibition era.  These two powerhouses account for 65% of the annual $250 billion dollar industry, and the U.S. treasury has laid out reforms to increase the markets fairness and equitability for emerging producers.  With the increase in competition, consumers would save upwards of $400 million annually as well as having a greater variety in the market to choose from.

https://home.treasury.gov/news/press-releases/jy0591 

The Good and Bad of Private Markets

 There has been a large shift in recent years by companies to invest workers' pensions into private equity markets rather than bonds or public stock. Although private equity tends to come with higher returns, there are also many risks that are not being talked about. Although private equity has survived and been popularized since the 1980's, a large increase in investments, as according to the Large Numbers Law, causes returns to decrease over time. Therefore, as private equity continues to grow, peoples' pensions will be invested in riskier and risker games in order to get returns. Also, within the private equity market, a secondary market has advanced, leading to risky trades in cheap debt. Therefore, a repeat of the housing bubble of 2008 could quickly be in effect. Also, private equity is largely dependent on debt being able to be bought cheap, so rising interest rates could cause substantial problems in coming years. Finally, without many of the tax loopholes like counting profit as capital gains, many private equity firms could be in a bit of trouble in coming years. It is extremely important that workers look into where their pensions are being invested because many of the these big risk could lead to insolvency and troubling futures for employees in the coming years.

https://www.economist.com/leaders/2022/02/26/investors-have-come-to-see-private-markets-as-a-cash-cow

Starlink internet service now available in Ukraine.

 The existing internet service in Ukraine has been disrupted, particularly in the southern and eastern parts of the country where fighting has been heaviest due to the ongoing war with Russia. During times like these, if the internet is not readily available, it becomes really difficult to tell the world what's really going on in Ukraine, despite whatever Russia claims. Internet is the source that people have which they can use to update real-time situations to the world. During this time, Ukraine's vice prime minister asked Elon Musk to provide Ukraine with Starlink stations through a tweet, "@elonmusk, while you try to colonize Mars – Russia try to occupy Ukraine! While your rockets successfully land from space – Russian rockets attack Ukrainian civil people! We ask you to provide Ukraine with Starlink stations and to address sane Russians to stand." To which Elon Musk replied, "Starlink service is now active in Ukraine, More terminals en route." While extremely costly to deploy, satellite technology can provide internet for people who live in rural or hard-to-serve places where fiber-optic cables and cell towers do not reach. While this may not be exactly the good news the people of Ukraine were looking for, this is something that will definitely help the people.

https://www.aljazeera.com/news/2022/2/27/elon-musk-starlink-internet-service-ukraine-russian-invasion

Get Caught Up: Michigan has the No. 1 US Economy, According to Bloomberg

Out of 50 states, 37 states have a population of 2 million or more.  Of these 37 states, Michigan is leading in economic growth within the United States.  This growth is being measured through 5 equally weighted measures: employment, personal income, home prices, mortgage delinquency, state tax revenue, and the stock market performance of the state's publicly traded companies. This outstanding growth, the most in the state's history, has all occurred since the start of the pandemic in 2020.  Non-farm payrolls have increased a shocking 25%, just shy of double the United States average; this leads the nation in wage growth.  Another astounding factor is the unemployment rate dropping to just 5.6 from the pandemic high of 23.6%.  The government had some of the best returns on bonds; they beat all neighboring states as well as the entire municipal market.  While this growth will likely not last forever, for now, Michigan is on the rise.  

https://www.clickondetroit.com/news/2022/02/26/get-caught-up-michigan-has-the-no-1-us-economy-according-to-bloomberg/

The Indian Economy

 During the Pandemic, as many economies slowed down, so did India's Economy. But the rising crude oil prices and supply disruptions following Russia’s invasion of Ukraine could further slow it down. This is because 80% of India's oil usage is dependent on imports. The trade deficit might increase, following the weakening of the Indian rupee and higher inflation because of the rise in prices, as one barrel shot up to $105. This may also adversely affect household spending and private investment. A 10 percent rise in crude oil prices could lower India’s GDP growth by 0.2 percentage points, this may also pose risks to corporate profits. This slower rate of economic growth and the little attention given to monetary and fiscal policy, as it is right now, could affect investment and job creation. Prime Minister Narendra Modi’s government last week flagged that the pandemic recovery will be challenged by geopolitical risks. The situation might continue till the Russia-Ukraine issue comes to a rest. Hopefully, things will get better. 

https://www.aljazeera.com/economy/2022/2/28/an-already-slowed-indian-economy-faces-fresh-risks

High Food Prices To Pressure Inflation This Year

Developing countries are especially at risk as drought, demand for food items, and the recent war in Ukraine push up crop prices. The prices of wheat, corn, and soybeans rose steeply last year which means higher grocery prices worldwide this year. Consumer food prices tend to lag behind commodity prices by several months. Central banks including the FED have increased the interest rate and they plan on increasing it again because of high inflation. Increasing food prices could add pressure on the interest rate even more. This is more likely to affect poorer countries, where food accounts for up to half of household budgets, and past data has shown that inflation is more closely related to movement in global food prices. This could widen the economic performance between poorer countries and richer ones even more, and this will mean that people in developing countries will see their real incomes decline which will eventually lower the consumption resulting slowdown in their economies.

 

 

 

 

https://www.wsj.com/articles/high-food-prices-to-pressure-inflation-this-year-11645974001

How new sanctions could cripple Russia’s economy

 There were new sanctions targeting Russia’s financial system announced by the United States, the EU, and other allies. This is starting to be a credible deterrent against Russian aggression. Although it is too late for western countries to help prevent the invasion of Ukraine they may be capable of triggering financial mayhem in Russia. This could lead to freezing a total of 630 billion Russian foreign exchange reserves. The majority of Russia’s holdings and securities; band deposits and other instruments are in jurisdictions that will enforce western sanctions. 

Although these limits on western technology and industrial exports to Russia will take months to years to have an effect. Russia responded by saying that these sanctions were “illegitimate” and indicated that Russia’s nuclear forces had been put on a heightened level of alertness in response. As well as penalties on oligarchs and their offshore wealth have led to some tycoons calling for an end to this war. Damage from the war, ruble falling by 10%, stock market falling by 35%, and a share of prices of the biggest banks by over 50% are all intensifying the panic in Russia’s financial system. Russia may have to temporarily close its financial markets to prevent a currency collapse.

Now that these sanctions are in place and Russia expressed that its nuclear forces are on a “special regime of duty” the West may now have to alter its nuclear posture in response. We also have to watch for the retaliation of Russia by intensifying their cyberattacks on Western institutions or limiting their gas supply to Europe. The next steps that the Western world may want to take are blocks on internet services or sanctions on Russian oil.

https://www.economist.com/finance-and-economics/2022/02/27/how-new-sanctions-could-cripple-russias-economy

Lowest Jobless Claims in the US Since 1970

 This past Thursday, the Labor Department issued a report stating that the number of jobless claims in America is the lowest it has been since March 1970. Considering that in just a week from now will mark two years since the Covid-19 lockdowns began in the U.S., such a report is great news. Although scares with the Omicron variant earlier this year had resulted in spikes in jobless claims, but now those claims are back on a downward trend. Thomas Simons, a market money economist at Jeffries, predicts that jobless claims will continue to fall, although perhaps not in a linear week-by-week fashion. However, despite this decrease in joblessness claims, America’s economy still does not quite yet reflect its pre-pandemic robustness. Compared to February 2020, as of January 2022, the U.S. is still short 2.9 million jobs. The bounce back in America’s economy is strong, and the falling rates of joblessness claims are a great indicator of the work that the government has done to provide jobs for the American people. The gain in jobs this past January far outscored estimated made by economists, who were hesitant due to spikes in the Omicron variant.

Source: https://www.cnn.com/2022/02/24/economy/unemployment-claims-coronavirus?utm_source=business_ribbon

EU to Impose New Sanctions on Belarus This Week and Why That's Crucial

    Belarus dictator Alexander Lukashenko may just hold Ukraines fate in his hands after all. If Belarus joins Russia full force in the invasion of Ukraine, the stiff resistance may be truly overpowered this time. Belarus has already been helping Russia with the invasion but have not invaded themselves. This is not news to the EU, and being proactive, the EU is to impose new sanctions on Belarus. These sanctions will be hitting exports, oligarchs, central bank and will cut Belarusian banks off from SWIFT. "In terms of the economic sanctions package, it's imminent, it'll probably be proposed either today or tomorrow," the official, who asked not to be named, said. He then added, "I would expect that in the course of this week we will introduce restrictive measures against the most important economic sectors in Belarus." The plan for the EU is to replicate Russian economic sanctions on Belarus as they're choosing to be working direct with Russia. Belarus could just turn out to be the tipping point of this war, and the EU sanctions will be great deterrents in order for Belarus to feel some consequences for their unwise actions. 

Link : https://www.reuters.com/world/eu-impose-new-sanctions-belarus-this-week-eu-official-2022-02-28/

Chicago business barometer falls from 65.2 to 56.3

 With the ongoing shortage of labor and materials, the Chicago business barometer falls from 65.2 to 56.3, even businesses are coming back at the tail end of the Omicron wave. 

Prices and inflation are still high, which means that it will be more difficult, however, for dormant businesses to restart themselves. 

With lower number of workers and materials, meeting consumer demand is more difficult. Based on this, we should an increase in price level (excluding the fact that prices have already started to rise due to the Russian invasion of Ukraine). 

I theorized earlier last month that unemployment should rise as well due to the increase in wages. However, based on today's news, I find it difficult to support this claim, as the size of LFPR is quite vague at the moment. In fact, it is being forecasted that unemployment will drop to 3.9% from 4.0%. 

Source: https://www.marketwatch.com/story/chicago-economy-slows-in-february-as-business-barometer-falls-to-18-month-low-11646060228?mod=economy-politics

Fed Favorite Inflation Gauge up 5.2%

         One of the key inflation measures that the Fed uses, the core personal expenditures price index, rose a staggering 5.2% from last year.  Which is the highest rise in inflation in the last 40 years.  the rise in food and energy prices was a big part as they rose 6.1%.  

    Consumer spending was also a big part as it rose 2.1%, faster than the expected rate of 1.6%.  This reversed the decline in December of 0.8%.  This is somewhat surprising because personal income remained constant and real disposable income fell 0.5%.  This increase in spending lowered personal savings by 6.4%, the lowest that it has been in almost a decade.

    In order to combat this high rise in inflation, the Fed has come out and said that they will be raising interest rates as soon as March.  However, due to the Ukraine conflict, the hike in interest rates is less likely by 50 basis points.

    Inflation has also led to increases in salaries and wages.  Rising 9.3% last year compared to the lower 1.3% the prior year.  That influx of money has been a part of keeping inflation on the rise but also has kept the demand for goods high.

https://www.cnbc.com/2022/02/25/pce-inflation-january-2022-.html

 

Ukraine hospitals could run out of oxygen supplies in 24 hours as war disrupts health services

Many people have been hospitalized due to Ukraine and Russia's war. Ukrainian hospitals could run out of oxygen supplies in the next 24 hours as Russia’s invasion disrupts transportation across the country, putting thousands of more lives at risk.Trucks are unable to transport oxygen supplies from plants to hospitals around the country, including the capital, Kyiv, which faced a barrage of Russian missile attacks overnight. The U.N. warned us of a new Covid contagion as hundreds of thousands of people flee the Russian invasion. Ukraine has faced a surge of omicron Covid infections, with cases rising a staggering 555% between Jan. 15 and Feb. 25. Another Covid outbreak combined with increasing numbers of people injured in the war would put even more pressure on Ukraine’s already stretched health system and economic issues they are already going through. As Ukrainians are trying to flee, they are also bringing COVID with travel to other countries such as Poland, Hungary, Romania, and Slovakia. Everyone knows what COVID did the first time to the economy, nobody needs it again.

https://www.cnbc.com/2022/02/27/ukraine-hospitals-could-run-out-of-oxygen-supplies-in-24-hours-who-says.html

Japan's production levels fall amidst global supply chain woes

 According to the article, Japan's factory output fell by 1.3% from the previous month, considerably more than the projected 0.7%, with falls in Steel and Automaker production levels contributing to most of the decrease. This adds to growing worries about the Japanese economy shrinking due to Omicron restrictions, along with the Russian invasion of Ukraine, and the consequent potential increase in fuel and energy costs.

Consumer expenditure also seems to have fallen off in the Japanese economy, with a 1.9% fall in retail sales in January compared to the previous month, which was, once again, a value much greater than the projected 1.2%. This may be an indication of delayed economic recovery due to falling levels of consumer confidence amidst Covid restrictions, and the general sociopolitical state of the global economy. Due to the continued negative state of growth in the Japanese economy, the central bank is slated to continue its stimulatory measures.

Japanese Automakers were forced to make production cuts in January, as stated earlier, due to supply chain issues, with a 17% decrease in production from the previous month. Toyota Motor corp., one of Japan's largest automakers, was forced to make a 32% cut in domestic output of finished automobiles in the month, whilst Nissan Motor Co., another large automaker faced 25% production cuts.

Relevant authorities expect the Japanese economy to rebound in the month of February (this month), but recent geopolitical developments are thought to have unforeseen impacts on the Japanese economy, which can only be taken into account with the passage of time.

Source: https://www.bloombergquint.com/global-economics/japan-s-output-falls-as-supply-snags-add-to-contraction-fears

The invasion of Ukraine

 On February 24th Cleveland Fed president Loretta Mester said that the Ukraine conflict might play a part in the pace of rate hikes. The invasion is putting the global economy in uncharted territory. Even though it was little, with the impact that Ukraine had on the U.S economy back in 2014 it is likely that interest rates will be pushing high. The Fed is looking and willing to wait until next month (March) to see if the conflict has an impact on the key policy interest rates. They will just have to keep a close eye and be prepared for the unexpected. 

https://www.marketwatch.com/story/economic-impact-from-war-between-russia-and-ukraine-seen-as-limited-for-u-s-11645548528?mod=federal-reserve

A Potential Housing Crisis in Our Near Future?

 There is currently a supply deficit in the housing market. Although housing is only a small part of our collective economy in the United States, it has been known to upset the larger economy in very large ways. For example, it is hard to forget about the housing crisis of 2008. That situation involved banks allowing people to take out loans for homes that they could not realistically afford at the time. The practical application in 2008 was that people could not afford their housing payments, and would end up losing their house. That entire situation applied large amounts of financial stress on an individual level to a large amount of Americans at the time.

With housing costs soaring, it is becoming difficult for people to afford homes in America. There are multiple possible implications of this. Many Americans will flock to apartment living rather than choosing to pay on a mortgage. Some others will choose to live in smaller homes while a non-insignificant population will still choose to pay on a more expensive mortgage loan, spending less money on other goods and services. Whatever happens, the overall economy will likely worsen due to decreased consumer spending. Although it is not a guarantee by any means, unless the housing supply deficit is improved, the United States economy is at risk.

Thorsby D. Dec. 15, 2021. What To Expect From the Housing Market in 2022. Retrieved from https://realestate.usnews.com/real-estate/articles/what-to-expect-from-the-housing-market

Germany Increases Funding of Armed Services in Response to Ukraine Invasion

 In response to Russias invasion of Ukraine, Germany will be increasing its spending on armed forces and their weapons. They are spending 100 billion Euros to fund this and its defense spending will increase to be over 2% of its GDP. This spending sparks a large change to a policy that has been around since World War II, but it is seen as necessary in order to defend against attacks and prepare themselves for anything that will come. They will be sending supplies directly to Ukraine after lifting restrictions that did not allow for these weapons to be sent directly into conflict zones. They will be sending1000 (anti-tank) weapons and 500 missiles to Ukraine to help them out, which is surprising considering they were very recently not willing to help Ukraine. When troops began building around Ukraine and there was threat of invasion, Germany was not willing to help and did not offer much because they did not take the threat seriously. After the Invasion, they have now changed their views and are helping by sending resources and weapons.

https://www.cnbc.com/2022/02/27/scholz-germany-pledges-defense-spending-increase-in-shift-in-strategy.html

Gas Prices Rise as a Result of War in Ukraine

Gas prices in the United States are expected to continue to increase as a result of Russia's invasion of Ukraine. President Biden warns Americans that the escalation of the conflict could mean trouble for the US economy and fuel inflation. President Biden has also hinted toward tapping into petroleum reserves if necessary to help ease the pain that many Americans are feeling at the gas pump.

It will be interesting to see how Russia responds to the sanctions that many NATO countries have begun implementing. This could significantly increase oil prices as tensions begin to rise between Russia and NATO leaders. Russia is the third-largest producer of oil and the second-largest producer of natural gas, so it is unlikely for Russia to cut exports as their economy heavily relies on revenue from oil and natural gas exports. 

Over the past year, we have seen gas prices continue to rise mostly due to the increase in demand as COVID fears ease. Gas prices have played a critical role in rising prices in the United States, accounting for about a quarter of the 6.1% rise in inflation. The rise in prices and increased tensions have pushed many world leaders to reduce reliance on oil natural gas. Overall we can expect an increase in prices at the pump due to inflation and the war in Ukraine, however, I believe the Biden Administration will do the best they can to keep prices stable even if that means tapping into reserves.

https://www.washingtonpost.com/us-policy/2022/02/24/oil-price-russia-ukraine/