Economy Insight from FedEx

 Do business trends from a leading package distribution company tell the story of our current and future economy?

FedEx has people on Wall Street concerned of the current and future status of our economy. Many have noticed the package distribution behemoth has slowed its delivery services, but look further to the stock and performance of the company in its latest earnings report. Since the last report, the company's stock decreased by 20%+ compared to competitors in the same sector. The last report that forecasts future earnings was not submitted by the company due to a "volatile operating environment". FedEx as a company blames the large economic climate surrounding its business for its recent downturn, suggesting that the challenges in the economy and problems stemming from COVID-19 have greatly hurt the company. 

Currently the company is removing trucks and planes from service and stepping up fees for delivery. But what can we take from FedEx's withdraw from their sector as companies like Amazon, and UPS stay more constant than FedEx. An analysis of FedEx's past figures suggest that this behavior has been consistent with past economic trends. Specifically the last 3 big recessions that we have has in the United States have followed these withdrawing behavioral patterns of FedEx. 

Economic analysts look to see if FedEx is really declining its business and being conservative with expenses due to Economy, or whether a shift in CEO after 50+ years of business could be a second source for change. All in All in terms of global companies, FedEx has a good lay of the land when it comes predicting the economy. 

Ultimately, it's up to conversation surrounding the company whether other businesses and economists choose to use this information to their benefit. 

Source:

fedex-federal-express-inflation-shipping-stocks-selloff-recession-supply-chain

Fed unsure of economy’s direction as Wall Street meltdown worsens

Federal Reserve Chair Jerome H. Powell came out this week and said that there are some things the fed does not know about the U.S. economy. A few things he does not know are whether or not the US will fall into a recession, how long high inflation will last, and doesn't know if healthier supply chains will be any help. 

The Fed's anti-inflation fight is only making slow progress, causing a surge of criticism of the industry. In response to COVID,  the Fed flooded the US economy with large amounts of stimulus and liquidity to keep it afloat but did not focus on carefully reducing that money supply over time. The M2 supply of money, a broad measure of money supply that includes cash and deposits, has been growing by double digits in the past three years. Now the growth of the M2 money supply is slowing too rapidly and that could send the economy into a recession. 

The Fed is supposed to be the best source as to what is going on in the economy. It is supposed to have all the information and has no political reason to hide certain information. Right now, the Fed is just as blind as everyone else as to why our economy is the way it is now. This is an economy that the world has never experienced before. Snarled supply chains. Global food and fuel prices are through the roof due to Russia's invasion. The unpredicted pandemic caused an unprecedented amount of factory shutdowns, and now inflation is at rates we haven't seen in years. The Fed does not expect annual inflation to return to its 2-percent price-stability target before 2025. 

The Fed also released some of the top officials' quarterly forecasts specified down to 1/10 of a percentage point to clear some of the fog among analytics. The Fed is known for predicting where the economy will be in the future very poorly. For example, the median projection for the Fed's preferred inflation called for a raise of 2.6 percent, instead, the latest estimate now calls for inflation to be 5.4 percent. All Powell is trying to do is show that the evolution of the economy is changing and that almost everything is uncertain. 

The Fed has plans to fight consumer price inflation of 8.3 percent. They plan to raise interest rates until the economy slows. This has already caused the housing market to a steep decline, meaning if we want to beat inflation, we will have to suffer in other categories. With weakness in the economy, employers will begin laying off workers. The Fed expects unemployment to raise to 4.4 percent from 3.7 percent. Since interest rates started rising, global stock markets have lost $12 trillion in value.  

Article Link

Workers' Changing Attitudes Tighten Labor Market

 

I read the article "Workers' changing attitudes tighten labor market" in the Wall Street Journal. It talks about the relationship between workers and their jobs, how workers care about how they're treated and have others things to do with their time. As social attitudes have changed over time, so have attitudes toward work. Which is shown through strikes, such as the recent railroad strike and the Minnesota nurses walk off. Workers want a higher wage and to be treated better, whether it's through the amount of sick days they have or not having to work in unsafe conditions. The effect of these changing attitudes is shown through how in recent years labor has become more expensive and scarcer. Sometimes these changes are from an event, like WW2 causing a big boost in women's labor force participation. The COVID-19 pandemic changed what workers were willing to do, for how long, and for how much. The willingness to work is changed by the alternatives becoming more appealing and by the work itself becoming more unpleasant. With covid pushing the workforce to work from home, many workers could feel that quitting is better than having to go back to an office. As they have enjoyed the time spent at home with family or maybe because working in person is too much of an risk. While the unemployment rate of 3.7% is similar to pre-covid times, the amount of vacant jobs is still high and has not gone down. The participation rate had a sharp drop with the pandemic and has not recovered since. The Fed does surveys that asks how many those who reply would like to work, and that number dropped for not only full time workers but for part time and those out of the labor force. With industry's like nursing homes, the pandemic amplified the staffing crisis as the feeling of being underpaid and overworked existed before covid. The downfall in the supply of workers shows that people are no longer willing to tolerate the conditions for the same pay. The attitude toward work though is always changing, and is starting to move again. As the desired work hours, labor force participation rate, and even number of workers in the office all move towards pre-covid levels. A high unemployment rate can reverse views on work, but as we transition into a period of time after covid the attitude toward work changes with it. The changing work attitude is how the industry grows and adapts to what the labor force wants and needs to join. This recent attitude may be already moving back, but the impact left should hopefully have an positive effect on the relationship between workers and their jobs.

 

 https://www.wsj.com/articles/workers-changing-attitudes-tighten-labor-market-11663765201

Britain's New Prime Minister is attempting to implement Reaganomics into Britain

Reaganomics is known as the series of neoliberal economic policies promoted by US President Ronald Reagan during his time in office in the 1980s. When Reaganomics was first implemented into the US, it was during a time of economic recession and was meant to counter the recession and improve the economy; which it did temporarily. Inflation and unemployment both dropped significantly, millions of new jobs were created, and the GNP saw a strong increase. 

Britain is currently seeing about a 9.9% inflation and the Bank of England just raised interest rates by .5% on September 22nd. Prime Minister Truss is laying out a huge fiscal stimulus that is expected to have large tax cuts and provide subsidies for energy bills. The Bank of England is expected, however, to raise inflation rates again in response to this fiscal stimulus faster than it otherwise would. Britain's currency, the pound, is also falling quite a bit which means the Bank of England will not be able to offset the fiscal stimulus using currency markets. When Reaganomics was implemented in the United States, it was accompanied by a strengthening dollar which greatly helped its success.

While Reaganomics were relatively successful in the United States, it does not guarantee a similar result for Britain. Britain's economy is structured differently and it relies more heavily on imports than the United States does. With the pound already weakening, this dependency on imports means trouble for Britain. It will be interesting to see the results of the fiscal stimulus in Britain's economy when so many are expecting it to fail.

Existing housing market sales dip for the 7th month in a row

 

I read the article “Existing home sales dip slightly in August, for the 7th month in a row” and it talked about the decreasing pricing on the housing market. For the 7th month in a row the price of homes in the housing market has dropped .4 percent in August which is worse than predicted. Down 19.9 percent from one year ago today the housing sector has taken a hit making peoples houses worth less and less. The article states that “ the housing sector is most sensitive to and experiences the most immediate impacts from the federal reserve's interest rate policy changes. And with interest rates continuing to rise another .75 points the housing market will keep being affected in a negative way. It states that more recently mortgage rates have climbed because they are anticipating fed rates to grow as well. With the housing sector being so closely tied to the Fed's interest rates as we see the feds increase the interest rate more to try and slow the consumption in the U.S you will see the housing market go down more and more for the next couple of months. And in another article I read “Jerome Powell in the spotlight as Fed expected to raise interest rates again” states that aggressive interest rates will work to calm down the inflation in the country, and with this they are expected to have another big raise. After the last two directly affecting the current housing sector I believe this will do the same, and that is why I believe we will continue to see a drop in housing prices.

https://www.usnews.com/news/economy/articles/2022-09-21/jerome-powell-in-the-spotlight-as-fed-expected-to-raise-interest-rates-again

https://www.usnews.com/news/economy/articles/2022-09-21/existing-home-sales-dip-slightly-in-august-7th-month-in-a-row

Money and inflation

A timely article relating the growth rate of the money supply to the rate of inflation, just like we have been discussing in class. There are some nuances regarding Prof. Hanke's argument as he is not addressing Reserve Balances of commercial banks, but, in general, his story does explain at least a portion of the inflation rate.

Treasury Yields Surge as Global Central Banks Scramble to Respond to Fed, Inflation

 I read the article "Treasury Yields Surge as Global Central Banks Scramble to Respond to Fed, Inflation", by Megumi Fujikawa. This article describes how the U.S government bonds yields have surged up to raise interest rates in banks. This is to help the local currencies that have been pressured by the dollar's strength. They remained stable since Thursday after the Fed raised short term rates by .75 points. Central banks are trying to one up another by raising their rates and other aggressive actions to get an upperhand. Jim Caron who is the senior portfolio manager and chief strategist of global fixed income at Morgan Stanley Investment Management. Investors, he said, are thinking, “I thought I knew where they were going, but now the sky’s the limit, and that’s where you get into this freefall type of mentality.” One may ask why is this important? It is important because as Fujikawa says, “U.S. Treasury yields play a critical role in the global economy, setting a floor on borrowing costs for U.S. consumers and business and establishing a benchmark forward-looking return against which other assets are measured.” With this people will be able to judge how their personal assets will be measured on a return of if they were to sell them and how much they are valued at.

 Since you are working on your newsletters and have been following various economic indicators, here is a very appropriate episode that combines economic indicators and music....if you have any spare time:

Looming railroad strike could cripple US economy

    A looming railroad strike could hurt the United States' supply chain and transportation rail service if both parties do not agree by the end of the week. Workers are seeking improvements to working conditions, even though the National Carriers' Conference Committee (NCCC) states that rail employees are provided "significant" time off and that companies have already have been offered a wage increase. Labor Secretary Marty Walsh will be meeting with rail company officials and union leaders to help them reach an agreement.

    Out of the 11 unions, two holdouts could lead to a future strike as the two consist of roughly half of all rail workers. A third holdout union turned down a deal with the NCCC and will strike in two weeks if an agreement is not met. A potential strike could lead to a loss of $2 billion of lost economic output per day. Freight railroads are responsible for carrying 40% of the nation's freight and work stoppage could jeopardize these shipments. 

    If a strike does happen, Americans will feel the effects. The effects could assist of everything from the potential for layoffs to empty shelves to continued inflation. Chief economist at KPMG, Diane Swonk, revealed that this strike situation could add another layer to a slowing economy would put the American people in a very bad place. 

    Unions still negotiating are continuing to call for better time-off policies for their workers. Railroad companies are routinely penalize workers for taking time off for sickness or a doctor's appointment. Unions have reported that these policies have forces thousands of employees out of the industry and make it tough to recruit new workers. The Biden administration has issued recommendations for a compromise between parties that include a pay rise and bonus increases, but they excluded the demand for the union's time-off policy. President and members of congress have introduced resolutions that could end any potential strikes.

https://www.msn.com/en-us/news/us/looming-railroad-strike-could-cripple-us-economy/ar-AA11PRYo

10-Year Treasury Yield Hits 3% for The First Time Since 2018

 

The 10-year Treasury yield reached 3% for the first time since late 2018. And as we know, bond prices and yield are inversely related, when treasury yield rises the bond prices fall. The borrowing cost from mortgages to student loans last closed above 3% in November 2018, and since the last year, it has jumped 1.49%. Corporate bonds and Treasury have slumped due to the increase in the interest rate by the FED, in order to curb inflation. Rising yields are often associated with strong economic growth. In this case, inflation is on the rise and the labor market is tight, which is why the FED is rapidly increasing the interest rates.

 

 

https://www.wsj.com/articles/10-year-treasury-yield-hits-3-for-first-time-since-2018-11651511960?mod=hp_lead_pos2