The 3-Year Economic Rollercoaster

 The 3-Year Economic Rollercoaster

We know that economists are always wrong, but the last three years predictions have been heavily miscalculated. They first underestimated inflation, then the labor market and consumer behavior. They also predicted the interest rate increases by the Federal Reserve, supposed to slow down the economy and bring inflation down, would put the economy into a recession. 

Price levels have been rising for the past 30 months and even with rates going up significantly, the economy still remains strong. More Americans are working than predicted, and consumers are spending more than expected. Right now, we do not see any sign of an economic downturn. But why did economists forecasted the pandemic and the economy after it so wrong?

Economists usually expect that economic growth slows down by the end of the year until early of the following year, which would cause unemployment to rise and inflation to go down. However, they are now expressing low confidence in their predictions due to the post-pandemic's economic unpredictability.

There were two main factors that contributed to the forecasting difficulties. First, the challenge to predict how the pandemic would affect consumer and business behavior because the world had not experienced a pandemic of this magnitude since the Spanish flu in 1918. Secondly, in response to the pandemic, broad fiscal policies were implemented, resulting in the infusion of over $4 trillion into the economy by the Trump and Biden administrations. 

Initially, economic models failed to consider the impact of pandemic-related savings on consumer behavior, resulting in an unexpected increase in inflation in 2021. Although unemployment rates were high, Americans' accumulated savings and increased demand for used cars and home exercise equipment contributed to price increases. In addition to the situation getting worse, the Russian invasion of Ukraine resulted in an increase in oil prices. However, as the labor market improved and wages grew, the predicted recession did not materialize.

The expected recession has not occurred yet, and economic growth continues to be strong. Consumers keep spending, and the fiscal stimulus keeps going for longer than anticipated. Economists now question if inflation can slow down without affecting growth. Despite falling to 3.7 percent in September, inflation remains higher than pre-pandemic levels of 2 percent. In view of inflation's persistence and the economy's resilience, some on Wall Street have suggested maintaining high interest rates to control it fully, a concept they call "Higher for longer." It has also been suggested that the low-rate, low-inflation environment of 2009 to 2020 may never be seen again.

Reference:

https://www.nytimes.com/2023/10/24/business/economy/economy-interest-rates-inflation.html

U.A.W. Expands Strike to General Motors' Biggest U.S. Based Plant

    

    After six weeks of striking U.A.W. has gained another important piece in its cause. On Tuesday the United Automobile Workers union stopped production at G.M.'s largest factory in the country. This step substantially increases their strength and puts even more pressure on America's largest automakers. 

    On the same day that General Motors announced it had a drop in third quarter profits, the union organized and told the Arlington, Texas based plant to halt working. The work stoppages so far, which have also hit Ford Motor and Stellantis, have reportedly lost the automakers around $800million dollars thus far. Arlington was selected as a part of U.A.W.'s ongoing strategy of targeting automakers' most profitable models and vehicles. This particular Texas plant is responsible for manufacturing large sport utility vehicles including the Cadillac Escalade, Chevrolet Tahoe, and G.M.C. Yukon. 

    Executives for General Motors had announced prior to the walkout on Tuesday that they had hope for a temporary agreement with U.A.W. in the near future. However, this strike through a wrecking ball into those hopes and leaves the future dim and uncertain. If these strikes continue to drag on they could leave a mark on the U.S. economy, making it more difficult for consumers to purchase automobiles of their choice. 

    These automakers are using these detrimental side effects to hopefully negotiate terms with the union. Stellantis reported to the union that as a result of the strikes they had to lay off 525 workers at factories in Michigan. All together, Stellantis has had to lay off over 2,000 employees, Ford has laid off 3,000, and G.M. a reported 3,000. 

    In terms of negotiations, G.M. has offered U.A.W. affiliated workers a 23% increase in pay over a four year term. This would lift the standard wage for experienced workers from $32 to $40 an hour, and lower rates for newer workers. This would in turn have employees working 40 hours per week at a top rate earning $84,000 a year. The union has initially demanded raises of around 40%, claiming that lower increases could not account for the living standards workers have suffered through due to inflation and past concessions in contracts.

    An agreement seems lost in the horizons as U.A.W. president Sean Fain has his eyes set on a broader movement that would extend to workers at Toyota, Honda, and Tesla. However, negotiations could be hurried by the oncoming pains of winter, with union members not keen on facing its harshness on $500 a week provided by the union.       

Source: https://www.nytimes.com/2023/10/24/business/economy/uaw-general-motors-strike.html 

Is the Housing Market Going to Crash?

It is very difficult to purchase a house in 2023. Alongside prices constantly rising, mortgage rates have been the highest we have seen in the past 23 years. Prices continued their increasing trend in the month of July, promoting the latest release from the S&P CoreLogic Case-Shiller home price index to conclude that 19 out of the 20 markets measured month over month gains. The National Association of Realtors (NAR) also reported that the median home price as of September, 2023 had increased by 3% over the past year, making it the third month in a row to display year over year jumps.

NAR data shows the median sales prices of existing homes are on the verge of record highs. September 2023 saw the median rise to $394,300 which is only $19,500 off of an all time high of $413,800. It is important to note that multiple seasonal fluctuations in home prices set June to be the highest priced month of most years in the market. 

Home values have been complacent even with the soaring mortgage rates, which have climbed up to 8%. The main problem for the housing market is the lack of housing supply compared to the demand from buyers as, "You’re not going to see house prices decline,” says Rick Arvielo, head of mortgage firm New American Funding. “There’s just not enough inventory” (Skylar Olsen chief economist at Zillow). Olsen agrees with the current supply and demand imbalance and forecasts that home prices will continue to rise into 2024, which will benefit sellers and will hurt first time homebuyers. 

So is the housing market going to crash... the answer to that is no. The limited supply and increased demand is blocking a price decline as, " There are more people than housing inventory. It’s Econ 101" (Mark Fleming chief economist at title insurer First American Financial Corporation) 

Source: https://www.bankrate.com/real-estate/is-the-housing-market-about-to-crash/

Ukrainians has opened around 30,000 businesses in Poland

 During the war in Ukraine, it has caused one of the largest exodus of people in human history. Many of these immigrants have moved to places such as Romania and Poland. Poland in particular has seen a large minority of Ukrainians move over there. According to one report, over 30,000 businesses have been opened by Ukrainians in Poland.

"A fifth of the Ukrainian businesses that are sprouting up despite Poland's sluggish economy are in construction. A large number are in tech and the rest are in services like hairdressing."

Some Ukrainian services have adjusted to include parts of Poland, such as the Ukrainian Postal Service. "Nova Poshta, is also now servicing the large Ukrainian community in Poland. It opened its first outlet in Poland in October under the name Nova Post, which allows customers to quickly send and receive parcels to and from Ukraine. 'Currently, there are seven branches in Warsaw, and we have 34 branches in the whole of Poland,' said the company's head of the Polish branch, 34-year-old Yevgen Tafiychuk".

Source: https://www.dailysabah.com/business/economy/to-not-go-crazy-ukrainians-open-businesses-in-poland-en-masse