Rental Housing Market

As someone who is looking into renting a property, it intrigues me why apartment costs can be so high. We find that often individuals are “rent-burdened” meaning that at least 30% of their income goes toward housing. Apparently, the rental housing market has reached a historic high point. As of 2022 fourth-quarter rent-to-income ratios suggest that people are on average paying 30% of their income toward rent. This ratio only continues to go up, and fourth quarter findings are 0.2% higher than the third quarter ratio. The 30% we are seeing in 2022 is overwhelming as the 2021 numbers suggest an increase of 1.5% of income going toward rent. This can be extremely scary as individuals are looking for a place to live. Numbers such as these make people suffer through rougher living conditions to avoid the high prices many apartment complexes are charging. 

The high prices for rent indicate that the economy does not care what social class you naturally come from. Many people find themselves to be luckier than others as the housing market has no consideration for people with lower incomes. This is a problem in the United States that is continuously found to be unsolved. Individuals who find themselves “rent-burdened” will work as hard as they can to make housing payments. These same people are living to work rather than working to live. As a college student, an issue like this can be concerning as it can be hard to have a steady income while participating in sports and classes. 

Source:

Sherman, E. (2023, February 27). The rental housing market hits an historic high point (and that's saying a lot). Forbes. Retrieved February 27, 2023, from https://www.forbes.com/sites/eriksherman/2023/02/26/the-rental-housing-market-hits-an-historic-low-point-and-thats-saying-a-lot/?sh=5c823462f58b  

 

US Recession?

    After the pandemic. economists thought the US was going to look like the roaring 20s. Though, the United States is doing economically good and economically bad. Our job growth is strong and our consumer consumption is looking positive. From looking on the outside, things seem to be looking pretty well. But our labor force is low and this whole Russia invasion has basically increased our gas prices here in the US. Gas is so expensive because energy bills are high from the war going on the other side of the earth. This is causing our inflation to be at an all time high since the 1980s.

    During times of inflation, businesses' will raise their prices to keep up with inflation, and workers will demand raises of wages to keep up with inflation. The problem is this only continues inflation. The President always takes credit for when the economy is booming. But when it is not doing good, he is the first to blame. But does he really have that much say in the economy. Sometimes the economy just works itself out on it's own. Recessions are good and bad. So what's the answer? Will Fed increase interest rates just enough so there is no recession, or will they increase it enough so there is a recession?

    To conclude, what's the direction for the US? When Ukraine and Russia are done fighting, will prices settle down? It's hard to say but it doesn't look good.

  https://hub.jhu.edu/2022/06/08/us-economy-rising-inflation-impending-recession/

Key Fed inflation measure rose 0.6% in January, more than expected

 The core PCE, the Fed’s preferred measure of inflation, increased 0.6% for the month and 4.7% for the year. Both values are higher than the 0.5% and 4.4% expectations respectively. The PCE including food and energy increased 0.6% and 5.4% for the year compared to 0.2% and 5.3& in December. 

Markets continued to fall after the report with Dow Jones Industrial Average off by about 500 points. The higher inflation also indicates interest rates will need to remain high for longer than expected. Consumer spending rose 0.4% more than the expected value of 1.8% and prices rose 1.1% when adjusted for inflation. Personal income adjusted for inflation also increased by 1.4% which was higher than the 1.2% estimate. Additionally, the personal saving rate increased to 4.7%.

These values all indicate that inflation has increased more to start 2023 than expected. This will likely cause the Fed to continue to raise interest rates into the summer. The Fed has already raised rates by 4.5% since March 2022 and will likely hike rates by an additional 0.25 percentage points at the next meeting. This is because the tighter monetary policy is yet to yield the desired decrease in consumer spending and aggregate demand. Markets will continue to be negatively impacted as long as the Fed continues to raise interest rates. 

https://www.cnbc.com/2023/02/24/key-fed-inflation-measure-rose-0point6percent-in-january-more-than-expected.html

Preparations beginning for March Madness 2023 in Birmingham

 Long story short, big events like March Madness are extremely good for both the overall and local economies. 

For the first time in 15 years, the first and seconds round of the NCAA tournament will be played in Legacy Arena in Birmingham, AL. This nationwide event brings an influx of people into the city bringing revenue in terms of: restaurants, hotels, etc. One restaurant said they are expecting a 50- to 75% growth that week and another believes that all restaurants in the area will get a 25- to 30% boost that week. 

Many cities hope to be able to host events like these because of the present growth and future expose for both the town and the businesses. 

https://www.cbs42.com/news/local/preparations-beginning-for-march-madness-2023-in-birmingham/ 

South Korea Says New FX Steps Will Boost Won's Status, Business for Firms

Earlier this month, South Korea's Vice Minister of Economy and Finance, Bang Ki-Sun, shared that South Korea has plans to loosen restrictions in its currency market to help boost the Korean Won on a more global level, ultimately providing business opportunities for the country's local financial firms. 

The Korean government has been compiling a list of measures to be taken with the aim of launching them next July. By allowing qualified global financial firms to directly trade the currency through two onshore spot brokerage houses and doubling the trading hours for the Won until past midnight local time, the Won is not becoming more volatile, but more convertible. 

With South Korea overcoming a financial crisis of their own (the Korean Financial Crisis of 1997), they have marked themselves to be one of the world's top 10 economies and is now in the process of expanding on their global market and platform, starting with making their currency tradable outside of the country. 

https://www.reuters.com/markets/asia/south-korea-fx-steps-boost-global-status-business-firms-vice-fin-min-2023-02-09/

Chinas Booming EV market: Booming from Subsidies, or despite them?

 This article talks about how successful the Chinese EV market has been compared to the markets in the US and Europe. China has become the world's largest manufacturer and producer of Electric Vehicles, and this has gotten some western governments worried. In China, domestic EV sales are expected to reach about eight to ten million in 2023, an increase from the previous record sale of 6.5 million in 2022. This far exceeds the sales of nearly three million EVs in Europe and two million in the US. At a global level, 7/10 of EVs are sold in China. In the first half of 2022, EV sales accounted for 21% of total car sales in China, compared to just 18% in Europe and only 6.5% in the US. The article states that, "It is estimated that about half of all cars sold in China would be EVs by the end of 2025." Chinese EV manufacturers have outperformed global automakers, and have now started targeting international markets. In addition to producing more, EVs from China, "enjoy both affordable prices and good quality." At this point, the article starts to give reasons for why the Chinese market has outperformed the US and Europe. While many analysts will point to massive subsidies given to the EV market by the Chinese government as the recipe for their success, this article takes the contrasting view that private innovation is driving most of the progress. There is no denying that the Chinese government initially handed out massive subsidies, with $60 billion being spent between 2009 and 2017 to jumpstart the car sector and "Almost $37 billion [going] toward consumer subsidies, representing a whopping 25 percent of total EV sales over the period." However, the EV market that was created from these subsidies differs remarkably from the current Chinese EV market. As the article states, "Although EV firms mushroomed to more than three hundred, only about 15 percent of them were actually manufacturing high-quality cars," and "The majority could not reach the production stage and probably entered the market mostly to benefit from generous subsidies." Of these EV firms, "independent producers, such as BYD, Geely, Chery, Xiaopeng, and NIO, emerged as the most successful EV carmakers and not the pampered state-owned enterprises." Changes began to be made in Beijing in 2016, when they "moved away from the subsidies regime to a more market-based one in order to stimulate competition," and "direct price subsidies were phased out and the government support shifted to building charging infrastructure." In addition, Beijing introduced a new "credit-based mechanism, similar to the carbon market, which allows carmakers to sell surplus EV credits to other companies." This is largely how companies such as Tesla were able to become profitable. In addition to the new mechanism, the Chinese government has also allowed foreign producers to enter the market, such as Tesla, which has had the effect of, "push[ing] the Chinese manufacturers to design EVs with smart driving features from scratch." The point of the article seems to be to push back on the popular claims that, in order for the US to catch up to China in EV production, we need a similar increase of gov spending and subsidies. The article is quick to point out that the US, and other western worlds, have already attempted to spur EV innovation through subsidies, "Western governments’ support to EV producers in terms of loans, grants, tax rebates, and generous consumer subsidies has been as comprehensive as China’s. They even went further by setting targets for phasing out IC cars. The only difference is the scale of government funding which set China apart." The conclusion of the article states that, despite popular claims, the booming EV market in China is more due to market forces, as opposed to government intervention, and therefore it is inappropriate to propose similar government spending proposals here in the US, "It is hypocritical to blame the current splurge of subsidies to the EV sector on China. The West has driven the green global agenda, and the development of the electric car sector is not hampered by unfair competition from China but by insufficient market demand for EVs. For a vast majority of consumers (more than 90 percent in the US), electric cars remain less attractive than traditional cars, not least because of their high prices and other practical inconveniences."   

  

https://mises.org/wire/chinas-emerging-global-leadership-isnt-just-result-subsidies-entrepreneurship-still-matters

Consumer Debt Reaches All Time High

 As of February 16th, 2023 consumer debt in the U.S. has reached a historic high of 16.9 trillion dollars. This is over 1 trillion dollars higher than last year, 1.3 trillion dollars in particular. This increase mainly comes from the 11.9 trillion dollar increase in mortgage balances and very high-interest rates. These major increases show the massive extent of the consumption factor in the U.S. economy and how it is still constantly growing and expanding. 

When looking at the specifics of why this increase happened one of the most important things, as I have previously mentioned, is the mortgage market. Serious delinquency mortgage loans of 90 days or more, which are known to be one of the worst-owned mortgage loan types, went up 0.57%. This is double the percentage from 2022 and is an overall negative in terms of the future of the housing market and consumer spending. Auto loans were also affected this past year as these loan delinquencies rose as well to 2.2% and credit card debt jumped as well. All of these different debts heavily contributed to the overall debt increase in consumption. 

The Fed attempted to fix current inflation problems, the main issue of why this debt happened, and raised its benchmark rate seven total times over the past year. These benchmarks raised the borrowing rate and boosted rates for items that cause debt such as credit cards and a variety of loans. As the Fed continues its advances at lowering the inflation rate it will have to begin to consider how it is affecting the people and the spending rates in our country or else it might bite them later on.

Article- Consumer debt hits record $16.9 trillion as delinquencies also rise (cnbc.com)

Covid’s ‘legacy of weirdness’: Layoffs spread, but some employers can’t hire fast enough

 Some of the biggest companies in the U.S. are laying off thousands of employees as 103,000 jobs were lost in January of 2023, the most since September of 2020. At the same time, 517,000 jobs were gained during the same month, making economists question what our future really looks like. 

As tech companies continue their layoffs, service industry jobs like Chipotle workers and airline pilots are coming back after being decimated by the pandemic. Many service industry companies are doing things like increasing wages, incentives, and even holding job fairs to help hiring. Workers are available and companies want to hire, it just comes down to giving them the skills they need to complete sophisticated jobs. All of this stands true even with rising consumer spending, rising inflation, and rising interest rates.

https://www.cnbc.com/2023/02/20/weird-job-market-layoffs-hiring.html

Despite Inflation, Consumers Continue to Dine Out

According to the Bureau of Labor Statistics' (BLS) January Consumer Price Index (CPI), the price of groceries increased 11.8%, while dining out increased 8.2%. As a result, consumers are spending more to eat out than they are for groceries. This trend began around the beginning of 2021 and has continued since. In January 2023, Americans spent approximately $86.6 billion at restaurants. This equates to an increase of 24% compared to January 2022. The current behavior of consumers is contradictive to economic theory. Specifically, as food prices increase, we would expect consumers to cut back on dining out and allocate more income to groceries. Part of the increase in restaurant spending can be attributed to more consumers are ordering take away. Another component driving restaurant spending is consumers sentiment after COVID. More individuals are willing to go out and pay the extra money because they were isolated for so long. Personally, I believe consumers may be using mental accounting, which could explain why they seem unresponsive to price changes. 

Article: https://finance.yahoo.com/news/consumers-are-still-spending-at-restaurants-despite-inflation-193806216.html

Shopping During High Inflation

 It is well known that inflation is impacting the prices of goods and services. Everything is getting more expensive, but retail sales in January surged anyway. US retail sales increased by 3% last month, which is the biggest rise since March 2021. However, the data that was reported does not account for price changes, so inflation partly contributed to this increase. Spending might have also increased due to the fact that many older Americans' incomes were increased by an 8.7% cost of living adjustment in social security checks. 

The Fed has been raising interest rates in hopes of slowing demand which could cool the economy down and stop rising prices. Although some parts of the economy seem to be ready to start accelerating again. It appeared in previous months, like December 2022, that consumer spending was slowing, but this hasn't stayed constant into 2023. Part of the strong consumer demand comes from a strong labor market.

Some economists believe that the Fed needs to do more to get a hold on inflation, while others believe that the January increase was just a one-off blip. Data from the coming months will provide key insights into how effects the Fed's policies are. 

https://www.nytimes.com/2023/02/15/business/retail-sales-january-inflation.html