The US economy has surpassed expectations for the month of January by adding 350,000+ jobs. The unemployment rate was also at 3.7%, and has been under 4% for the past two years. Consumer spending grew in both goods and services, and exports and government spending both increased. The real GDP increased by 3.1%, and the current dollar GDP increased by 6.1%. Previously, it was expected that the US economy would soon enter a recession, however, with this new data and information, it is now expected that the market will remain growing. The International Monetary Fund expects the US economy to grow 1.8% this year.
Friday, March 1, 2024
Thursday, February 29, 2024
Are Subdivision Houses and Mini Homes the Future of the Housing Market?
Robert Lanter is the perfect example of the many Americans struggling to afford and own housing in today's economy. Lanter moved from Portland to central Oregon and struggled to find an affordable home. For Lanter, living in a condominium or renting a home were out of the question. His 600-square-foot home was one of the few homes he could find under 300,000. And Robert Lanter is not alone. Caleb Rodriguez, a 22-year-old from Texas, recently moved into a community of mini homes, which range from 350 to 500 square feet. The homes do not have a garage and each driveway is just large enough for a single car or two motorcycles. While many people would prefer grander establishments, for numerous Americans, mini houses are becoming a clear choice over an expensive mortgage.
Last year, interest rates on a 30-year fixed-rate mortgage rose to the highest they've been in two decades-just around 8 percent. While mortgage rates have fallen this year, it appears that many people are moving towards smaller homes and even studio apartments. The concept of "starter homes" is no longer the norm for first-time home buyers and neighborhoods that used to be accessible are being gentrified. The increase of the trend of small homes is slow moving but the National Association of Home Builders among others, has indicated a movement toward more compact housing units. There is a strong desire for homeownership, but no longer a desire to pay the high price of land and buildings. Many state and local governments are endorsing this push for smaller homes and have passed bills making it easier for builders.
While the mini houses have shown a solution to this issue in the housing market, there is still something creating a problem for potential first-time home buyers with families. In the 1960s the median American home was 1,500 square feet and today it is 2,200 square feet. Many Baby Boomers no longer have children living with them but are in these huge homes, while newer families are forced to live in compact homes or condominiums. So, while smaller homes are better for singles, empty nesters, and couples without children an affordable solution for millennial couples with children has yet to be discovered.
Link to Article: https://www.nytimes.com/2024/02/17/business/economy/the-great-compression.html
NVIDIA's 2024 Surge: Groundbreaking Growth or a Speculative Bubble?
In an era where technology stocks have been oscillating between dramatic highs and lows, NVIDIA's recent stock performance stands out as a monumental feat in the financial markets. As of February 2024, the company's valuation soared, marking it as a beacon of the burgeoning artificial intelligence sector. But as an individual observing this meteoric rise, one can't help but ponder: Is this sustainable growth or are we witnessing a speculative bubble reminiscent of past market phenomena?
Historical Parallels and Investor Sentiments
The immediate comparison that comes to mind is the dot-com bubble of the late 1990s and early 2000s, where excessive speculation in internet-based companies led to inflated stock prices, followed by a significant market correction. Like NVIDIA today, many companies back then were heralded as the future of technology and industry, only to see their values plummet as investor sentiment shifted from euphoria to skepticism.
NVIDIA's stride in 2024, with a 58% increase in its stock price contributing significantly to the S&P 500's gains, sparks a dialogue on market dynamics and investor behavior. The company's valuation, surging to a staggering $1.96 trillion, places it among the titans of the U.S. stock market. But as past experiences have taught us, high valuations based on future potential rather than current fundamentals can be precarious.
The AI Revolution: A Sustainable Growth Driver?
NVIDIA's ascent is intrinsically tied to the global rally around artificial intelligence, a sector where it has established significant dominance. This is not baseless hype; the demand for AI-specialized chips and the company's tripled quarterly revenue are tangible indicators of its current market position and future potential.
However, the real question is whether this AI revolution and NVIDIA's role within it, represents a paradigm shift akin to the internet's emergence or if it's an overhyped segment poised for correction. The company's forecast of a 233% growth in current-quarter revenue, surpassing market expectations, certainly paints a rosy picture. But can this level of growth be sustained in the long term, especially considering global economic uncertainties and potential technological disruptions?
Reflections and Forward-Looking Questions
As we marvel at NVIDIA's record-setting achievements and its pivotal role in the tech revolution, it's essential to remain grounded. The soaring demand for AI capabilities and the strategic importance of NVIDIA's chips underscore a significant technological advancement. Yet, the shadow of history looms large, reminding us that no market trend, however robust, is immune to corrections.
So, is NVIDIA's current market performance a sign of enduring value and growth, or are we on the cusp of a bubble, inflated by speculative fervor and destined to burst? Will the AI sector continue to thrive, propelling NVIDIA along with it, or will it face the same fate as other once-hyped technologies?
These are crucial considerations for investors, analysts, and tech enthusiasts looking towards the future. As NVIDIA continues to navigate the complex interplay between innovation and market expectations, the world watches closely, pondering whether we are witnessing the dawn of a new era or the peak of a speculative wave. What are your thoughts?
Reuters
Yahoo Finance
Key Fed inflation measure rose 0.4% in January as expected, up 2.8% from a year ago
Both the headline and core PCE is increasing higher than the feds target of 2% annually. PCE without food and energy increased 2.8% from January 2022 to January 2023. It is believed that these price rises are due to the consumers shifting to from goods to services. The stock market barely reacted as only futures had a noticeable shift. The jobless claims totaled at 215,000 towards the end of February which was an increase from the previous measure. The Fed is still continuing to battle the inflation spike from 2022, and it is expected that they will reverse them. As the increasing fear of the CPI number loom, the Fed will continue to focus on what they deem to be the better metric, the PCE. They will do this because they believe that it is more specific to what consumers actual purchase.
https://www.cnbc.com/2024/02/29/pce-inflation-january-2023-.html
US Economy in the First Quarter: Inflation Trends and Labor Market Stability
The article emphasizes that the the Fed main measure of inflation has increased by 0.4% in January. This increase was in line with what they expected. Additionally, compared to the previous year, there was a 2.8% rise in inflation.
Personal income surpassed forecasts, increasing by 1%. But personal consumption decreased as spending experienced a marginal decline. Despite concerns of raising prices, market reactions remained kinda stable. It suggests a futures with minimal change in interest rate expectations, mostly staying the same instead of cutting or raising.
The report presents an ongoing trend of consumers using savings account to cope with inflation and price going up. As prices increase, the purchasing power of consumers diminishes, leading them to use their savings.
Despite other economic challenges, such as inflation, the labor market remains relatively ok. There haven't been a significant increase in the number of people filing for unemployment benefits, indicating that layoffs and job losses are calming down. Starting in January, we have more job opening in the market. This resilience in the labor market is a positive sign for overall economy.
Key Fed inflation measure rose 0.4% in January as expected, up 2.8% from a year ago.
Wednesday, February 28, 2024
Costa Rican colón sees sharp appreciation relative to the dollar
Last year, the Costa Rican colón appreciated by 11% relative to the US dollar. It rose from approximately 596 CRC/USD to about 535 CRC/USD. Today, it’s closer to 513 CRC/USD. According to The Tico Times, this appreciation was mostly caused by an increase in tourism, exports, and foreign investment. The reason that these would increase the value of the colón relative to the dollar is because they increase the supply of dollars in Costa Rica. The higher supply of USD leads to a lower equilibrium price, just as with any other market with supply and demand, which in this case is the exchange rate. If the dollar is relatively cheaper, than the colón is relatively more expensive or stronger meaning it has appreciated. This continued appreciation will benefit Costa Ricans who want to buy goods from the US. However, it will hurt exporters because the world will be less interested in buying Costa Rican goods because they are relatively more expensive.
https://ticotimes.net/2023/12/07/costa-rica-exchange-rate-hits-9-year-high-versus-us-dollar
Inflation and a Potential Government Shutdown
In the linked article, the author discussed the anticipated numbers that will be reported for CPI and PPI for the previous month. This report is to be released this Friday, these reports will greatly influence how the Fed will decide to cut tax rates for this year. It will influence when rates are cut, how much the rate will be reduced, and potentially how many times the rate will be cut this year. If the report releases the numbers expected by the article, a 0.3% increase in inflation and a 0.4% increase in core index, it is quite likely that the Fed will choose to not cut rates before May. As a result of slightly higher inflation and no upcoming tax cuts there will likely be less consumer spending and more investments in the upcoming months. However, once those inevitable tax breaks occur there will likely be a great increase in consumer spending. However, much of the presented information is simply predictions so we will have to wait for additional developments within the next couple of months to see if those predictions were produced.
Additionally, the article mentions that a government shutdown is likely to occur. This is largely due to a disagreement on a proposed bill for a new budget for Capitol Hill. Traditionally investments tend to go down in case of government shutdowns, however, there have been high levels of investments in the stock market, likely influenced by the actions of Nvidia and Amazon. However, if there is no agreement for the bill the government will shut down, resulting in less government spending which will greatly reduce the amount of output for the economy. This decrease in government spending will decrease GDP and slow job creation and consumer spending. Those who are aware of this issue are likely to increase their savings to brace for the impact of the potential shutdown.
Home Sales Rebounded in January After Last Year’s Sharp Decline
Sales of previously owned homes increased in the month of January relative to the prior month.
Since last fall, mortgage rates have decreased by about a percentage point, bringing buyers back into the market while house prices remain near all time highs.
The chief economist at the NAR (National Association of Realtors) says that consumers are taking advantage of relatively low interest rates. As rates have begun to increase again, the demand should slowly settle down.
While many aspects seem to be in favor of the buyers, the buyers are still struggling to find homes. This shortage of housing inventory is partially due to sellers being reluctant to sell their mortgages for higher ones. This low supply also increases the prices of homes, making it even harder for buyers to find something in their range. However, new listings have risen from January a year ago, another good indicator for buyers in the market.
The shortage of existing homes in the market also bodes well for the construction industry. To meet the demand of buyers, more houses need to be built. However, as the FED delays interest rate cuts even more, this demand should likely shore up.
Overall, economists seem to believe that the housing market will soon return to a seller's market. When the FED eventually cuts interest rates, mortgage rates will also go down. Sellers who previously feared a new, high mortgage rate will be more willing to sell their current homes.
Link: Home Sales Rebounded in January After Last Year’s Sharp Decline - WSJ
Inflation to Dominate the Week as a Government Shutdown Looms Again
The article I found that was interesting discusses the upcoming release of the Personal Consumption Expenditures (PCE) price index, which is a key measure of inflation favored by the Federal Reserve. Apart from the PCE report, the week ahead includes various economic data releases such as housing, GDP, and consumer sentiment indicators. There's also a deadline for a budget deal in Congress, adding to the economic backdrop. The economic calendar for the week includes:
- Monday: New home sales data expected to show a 3% increase.
- Tuesday: Consumer confidence index release anticipated to show a slight improvement.
- Wednesday: Second reading of Q4 economic growth with no significant change expected.
- Thursday: Pending home sales data expected to show a positive but smaller increase compared to December.
- Friday: Consumer sentiment index release expected to show a modest improvement.
Despite economic uncertainties, the stock market remained strong, driven by positive earnings reports and changes in the Dow Jones Industrial Average reflecting shifts in consumer spending habits.
www.usnews.com/news/economy/articles/2024-02-26/inflation-to-dominate-the-week-as-a-government-shutdown-looms-again
Tuesday, February 27, 2024
Swift Economics
As someone who is not particularly a huge Taylor Swift fan, it is still amazing to me the amount of influence she has in our world today. So, I wanted to look more into how her recent actions have impacted the economy. Her tour has made around $4.1 billion assuming that she keeps around 85% or the tour revenue which is more than the yearly economic output of 42 countries in the world today. For each individual show, it was estimated that fans spent all together around $93 million on everything from tickets to travel to the extravagant outfits that her attendees wear. I thought that it was interesting that the Federal Reserve Bank of Philadelphia used the term swift effect in one of their reports because of the boost seen in hotel revenue for the locations near her shows. Her tour brought “some much-needed dollars to the tourism industry,” and with every city she visited they saw millions of dollars flowing into their regional economy. Her tour also temporarily decreased the unemployment rate and increased the hourly wage of workers in the areas her show took place. It is undeniable that her tour has made a large impact on the regions she traveled to, and it is interesting to see how a bunch of fans can positively stimulate small regions of our country.
The Economics of Skiing in America
This article told the story of a skiing company named Vail, and how their monopoly in Colorado effected the economy. Originally to go skiing, consumers would need to buy a day pass which was profitable for Vail, however, if there was no snow, there would be no business. Vail decided to add an Elite Pass, which would give skiers a season pass at the resort, only if they bought ahead of skiing season. This would mean consumers that loved to ski would need to buy an expensive pass in October or November to earn the financial benefits of the pass. This new model would earn Vail enough revenue to buy out other skiing resorts and they now own 41 resorts in Colorado. This has created a monopoly in the economy, which would normally reduce the efficiency of the and industry, however, "if a monopolistic firm can charge different prices to different customers, it need not reduce output to increase its profit." This would mean that Vail can have a monopoly in the skiing industry, without losing any efficiency. The article reports that Vail's revenues went up 14%, and their season passes make up about 61% of their revenue.
https://www.economist.com/united-states/2024/02/27/the-economics-of-skiing-in-america
Consumer Confidence Slips in February
This article focuses on the consumer confidence index falling in the month of February. This is due to the concern over a possible recession. This comes as a surprise because the inflation is still about the Federal Reserve’s 2% target. In January the consumer confidence index was at 110.9 but has now fallen to 106.7. The income, business and the job market also fell in the month of February. A reading under 80 often signals an upcoming recession and it is at 79.8 for the month of February while it was at 81.5 in the month of January. The consumer confidence falling comes as a surprise because it was not anticipated but economists are not worried that there is anything to be concerned about.
Monday, February 26, 2024
Pessimism about the economy
There has been a lot of news recently pointing out that people feel rather pessimistic about the state of our economy. This article summarized six hypotheses about what can explain this pessimism.
Sunday, February 25, 2024
AT&T CEO apologizes for widespread outage, says some customers will receive credits.
AT&T's CEO, John Stankey, apologized for a widespread cellular outage affecting thousands of customers. He announced compensation for affected accounts without compromising the company's 2024 objectives. Stankey assured prepay customers of options and addressed concerns from mid-market and enterprise clients. Initially suspected as a cyberattack, the outage was attributed to an incorrect network expansion process. Stankey admitted the letdown for customers and thanked staff for their response efforts, promising preventive measures for future incidents. Will these measures actually work? What kind of credits would make up for this crucial mistake?
https://www.cnbc.com/2024/02/25/att-ceo-says-some-customers-will-receive-credits-for-outage.html
Equity Markets at All Time High
This past Thursday, the equity market advanced more than 2%, and this was maintained throughout the weekend. This is in main part due to the Mag 7, (MSFT, GOOG, APPL, AMZN, META, NVDA, TSLA), these companies make up for a combined 30.7% weight of the total market. Meaning that their performances as a group can single handedly determine how the market does as a whole. Obviously, these companies have been doing well, (their weighted average prices have gone up 14.48%). Which has accounted for most of the advance in the equity market as of late. The other 493 companies have gone up as a whole as well, just not accounting for near as much as the Mag 7. More specifically to put it into perspective, of the combined percentage points that the market went up, the MAG 7 accounted for 66% of them. Hopefully, the back 493 can start catching up to advance the market even more, and give a more accurate description of the equity market.
Japan into recession, Germany now world's third-biggest economy
Japan unexpectedly slipped into a recession at the end of the previous year 2023. This event marked two consecutive quarters of contraction and leading to doubts about the central bank's exit from its long-standing ultra-loose monetary policy. The country's gross domestic product (GDP) fell by an annualized 0.4% in the October-December period, contrary to market expectations for a 1.4% increase. Weak demand in China, sluggish consumption, and production halts at a Toyota unit contribute to a challenging economic recovery. Private consumption, representing over half of economic activity, fell by 0.2%, while capital expenditure dropped by 0.1%. The ongoing frailty in consumption and capital expenditure, essential for domestic demand, stands as a significant concern for the economy's momentum to excel out of recession.
Some analysts are pushing back expectations of an early exit from negative interest rates, citing the difficulty in justifying rate hikes amid the economic downturn. Japan's nominal GDP for 2023 fell below Germany's, making it the world's fourth-largest economy. Despite the economic challenges, the Nikkei stock average rallied to 34-year highs, with traders pushing back bets on an early BOJ policy shift. Yields on Japanese government bonds fell. The challenging economic landscape and doubts about policy shifts have led to caution in the financial markets, with a potential impact on the Bank of Japan's plans for policy adjustments.
Because of this downslope in the economy, German had a chance to stand out and became the 3rd biggest economy globally. With a GDP of $4.5 trillion, Germany now sits behind the United States and China in terms of economic heft, and narrowly leads Japan, which has a GDP of $4.2 trillion. The last time Germany held the number three spot was in 2007, before it was overtaken by China.
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