Credit Card Balances Are Over $1 Trillion For the First Time

As a consumer based economy, Americans are always looking towards spending their next dollar. However, the current fiscal times are managing to squeeze money that consumers don't have out of them. With inflation on the rise and high levels of consumer spending, the total credit card indebtness has shattered the record by rising by a whopping $45 billion dollars, crossing $1 trillion dollars total in the past few months.

The New York Fed has reported that Americans are breaking debt records by not only breaking the credit card debt numbers, but also breaking the record for total household debt which crossed $17.06 trillion dollars.

A product of the increase in debt is that people may soon find it hard to get approved for a newly issued credit card as banks are tightening their requirements and standards.

The Fed also reported that other categories have seen an increase in debt over the same time period. Newly issued mortgages rose to just over $12 trillion dollars, auto loans to $1.58 trillion, and student loans decreased to $1.57 trillion.

Source:

https://www.cnbc.com/2023/08/08/credit-card-balances-jumped-in-the-second-quarter-and-are-above-1-trillion-for-the-first-time.html

How will a government shutdown affect the current economy in the U.S.

 

    According to the Congressional Budget Office, “the five-week partial government shutdown in 2018-2019 reduced economic output by $11 billion in the following two quarters—including $3 billion that the U.S. economy never regained.”
Moody's Analytics estimated that the 2013 full government shutdown reduced GDP growth by $20 billion.

    In the past couple of days, there has been a talk of a government shutdown. This was put into place because Congress has failed to pass a funding legislation that is signed into law by the President. This shutdown means that many people are without jobs and are receiving no pay including the local area business owners. With our current economic state the question is if this shutdown is the right thing to do and how will it proceed to affect our economy. With the Fed increasing interest rates in order to combat inflation. Home prices are still continuing to rise due to the demand outweighing supply. Also, the Consumer Price Index(CPI) is now rising 3.7% annually in August, up from 3.2% in July. Inflation is down from the peak of 8.8% in June 2022 but still above the Fed’s 2% target rate. We already know what a shutdown has done for our economy in the past, will this next one be something similar? 

    

Source

https://www.uschamber.com/economy/economic-viewpoints

Will the US Economy Go Into A Recession?

The question of whether the US will go into a recession or not has been floating around the past year or two. There is not a definite answer but there has been better news as of recent. With recent inflation as well as the fed continuing to hike interest rates, the economy has been still steadily growing. This is heavily driven by consumer spending maintaining its power. Unemployment rates have been low and there has been a growth in wages which has helped to stabilize these numbers. 

The fed has been raising interest rates as they prioritize the fighting of inflation. This has impacted the increase of yields on fixed income assets, rates of mortgages, and other finances. This may lead to a small recession where the economic growth will slow down, but the employment will not take as much of a hit. 

A large factor in this topic is the state of corporate earnings. Even though the earnings growth decreased in the first two quarters of 2023, they are still beating forecasts. This impacts many other factors of employment and wages which ultimately leads to whether those will cause consumers to not spend as much. 

Source: https://www.usbank.com/investing/financial-perspectives/market-news/economic-recovery-status.html

Inflation effects on households

 The US economy is currently doing pretty well, much better than predicted two years ago. However, inflation rates were up 5.4% (in January) higher than last year. This is clearly much higher than the target 2% rate, and to achieve this rate the Fed will continue to raise interest rates. Since 2022 the interest rates have been increasing rapidly and recently reaching 4.5%, a 15 year high. For private consumers these high interest rates increase the cost of having a balance of credit cards. For businesses the interest rates make it more expensive to borrow money, which often leads to reducing spending which could mean laying off workers. The Feds plan of increasing interest rates to battle inflation will not change any time soon. Who is this affecting?

Recent data shows that the higher income houses are not feeling the effects of the inflation as they continue to shop and travel despite the price raises. The top 40% of households make up 60% of the consumer spending, and that number has been increasing over the past few years. Lower income households are hit hard by the higher prices and are struggling. This has led to credit card debt being at an all time high. Although the economy is doing well now there will be an impact due to the lack of spending by lower income households. The Fed will need to look for a new solution to combat the inflation rate or just lower interest rates to see if spending goes up by lower income households. Should the higher income households have to pay higher taxes or give up some of their money? Either way something will have to be done.

Reference:

Semuels, A. (2023, February 24). U.S. inflation rates are rising, a bad sign for most Americans. Time. https://time.com/6258167/inflation-rising/

 Fueling Economic Fire

The Federal Reserve is experiencing a challenge due to the rising interest rates and oil prices. There has been a rise in Treasury yields leading to higher costs for consumers and businesses, unrest in the stock market, and difficulties managing inflation without causing a recession.

The average price of gasoline in the United States has approached the worrisome $4-a-gallon mark as oil prices have resumed an upward surge, reaching over $95 per barrel. In addition, the strong dollar is depressing foreign earnings for U.S. companies, adding to the economy's challenges.

There is a discrepancy faced by the Federal Reserve between the short-term interest rates, controlled by the Fed, and the long-term rates, set by the bond market. Bond markets have signaled a possible recession since November 2022 by inverting the yield curve, where long-term rates are lower than those set by the Federal Reserve. Despite the Fed's efforts to control inflation by raising interest rates, inflation remains high, and a potential recession looms.

Interest rates have increased, making consumer loans more expensive and limiting consumer spending. Because interest rates and bond prices are inversely related, long-term bond investors have suffered losses. ETFs such as the iShares 20+ Treasury Bond have been affected significantly, with the iShares 20+ Treasury Bond exchange-traded fund in particular experiencing a notable drop.

Stock investors also face a challenging situation since they hoped inflation would be controlled by the Fed and that tightening would end soon. The unsettled economic environment and market conditions point to further turmoil, with factors outside of the Federal Reserve's control impacting the economy and markets.

Reference:

Sommer, Jeff. September 29, 2023. Why High Interest Rates and Energy Prices Are Stressing the Economy. The New York Times. 

https://www.nytimes.com/2023/09/29/business/interest-rates-energy-prices-stocks-economy.html#:~:text=Interest%20rates%20and%20gasoline%20prices,bets%20on%20long%2Dterm%20bonds.

U.K inflation falls unexpectedly

 In August, the U.K.'s inflation rate unexpectedly dropped to 6.7% from 6.8%, proving predictions of a rise due to increased oil prices to be wrong. Core inflation, not including items like food and energy, fell even more to 6.2% from 6.9%. This decline added to a decrease in services inflation, raised doubts about the Bank of England's planned interest rate hike, marking a potential shift in its monetary policy. Meanwhile, the U.S. experienced a 3.7% increase in consumer prices, and Europe's inflation remained higher due to energy and food price spikes following the Russia-Ukraine conflict. Despite efforts to curb inflation through higher interest rates, Europe's economies, including the U.K., faced challenges. 

Hannon, P. (2023, September 20). U.K. inflation falls unexpectedly, easing pressure on Bank of England. The Wall Street Journal. https://www.wsj.com/economy/global/u-k-inflation-falls-unexpectedly-easing-pressure-on-bank-of-england-bdaa4bdc?mod=global_news_article_pos3 

Ziady, H. (2023, September 21). Bank of England pauses historic rate hikes as UK inflation falls | CNN business. CNN. https://www.cnn.com/2023/09/21/economy/bank-of-england-uk-interest-rates/index.html

Chinese state firms' help to troubled shadow bank does little to address investor concerns

     The Zhongrong shadow bank had been on the verge of a crisis for a foreseeable amount of time, though recently the involvement of two Chinese state-owned financial firms in their management and operations sectors may have started limiting the risks the shadow bank had been accumulating. However, this has done little to ease the common concerns of investors for they have had a sizable amount of missed payments on a large amount of trust products since late July. 

    This has led to rising fears that the Chinese financial system may be on a dangerous path because of the property sector crisis. To ease tensions Zhongrong said in a statement late on Friday "it had signed an agreement with Citic Trust and CCB Trust - the shadow banking arms of two state-owned firms Citic Group and China Construction Bank - for so-called "entrusted management services".

    These kinds of practices have been increasing since 2017 by the Chinese authorities to decrease risks attributed to shadow banks. There are many concerns revolving around the practices involved with the banks themselves including "their exposure to assets accumulated through opaque fundraising channels". But with the help of Citic Trust and CCB Trust, they're hoping to come up with a repayment plan to compensate for the missed payments. Though hopes are not high for investors with the bank.

Article:

https://www.reuters.com/world/china/chinese-state-firms-help-troubled-shadow-bank-does-little-address-investor-2023-09-18/

The Producer Price Index, Chicago PMI, and Baker Hughes Crude Oil Riggs

 The Producer Price Index, Chicago PMI, and Baker Hughes Crude Oil Riggs

By: Jackson Canada, Aidan Gennaro, and Graham Stadtler

 The Producer price index is a tool used by economists that measures the average change within a given time period of prices received by domestic producers for their goods and services. The PPI is measured monthly by the Bureau of Labor Statistics with the most recent calculations released on September 14, and the remainder for the duration of the semester being Oct. 11, Nov. 15, and Dec. 13. The PPI is calculated similarly to the CPI by dividing the average weighted prices of goods and services produced in the current month by the average weighted prices of a base month and year and multiplying the value by 100. The calculations for August 2023 report that the PPI for final demand advanced a seasonally adjusted 0.7%  and 1.6% on a year-over-year basis. This monthly rise in prices is the largest since June 2022 and can largely be attributed to the 10.5% increase in energy prices. For reference, gasoline prices skyrocketed by 20.0%. The index excluding energy, foods and trade services rose .3% in the month of August and 3.0% for the 12 months ended in August; the largest increase since the 12 months ended in April (3.4%). On the other hand, prices for fresh produce fell 11.5% with the indexes for residential electric power and industrial chemicals also decreasing. The mixed signals with the PPI and its other indexes leave the future uncertain, with the Fed deciding to leave interest rates unchanged at 5.25%-5.50% for the month of September. Powell said in his statement regarding the soft landing of inflation on Wednesday, “We want to see convincing evidence really that we have reached the appropriate level, and we’re seeing progress and we welcome that. But, you know, we need to see more progress before we’ll be willing to reach that conclusion”. The future for the economy remains cloudy with the Fed still targeting a soft landing from inflation as its main priority. The remainder of the FED’s decisions for the fourth quarter are going to be game-time decisions, and the future of inflation remains uncertain although things seem to be getting better.    

               Baker Hughes has issued rotary rig counts since 1944.The Baker Hughes Crude Oil Rigs refers to a widely used oilfield service company that keeps track of how many off-shore and land based oil sites there are which allows for a better understanding of the oil in a given area or globally. This means that they essentially keep count of how many drilling sites there are world wide for oil that are in use. They do so by doing a weekly rig count that first started in 1975. This means the active rigs are counted every single week and new numbers are released. New numbers are released Friday the 22nd of September and the last numbers released are from September 15th. Since 2014, almost 10 years ago, there has been a decline in crude oil rigs worldwide. From over 1600 in 2014 to around 600 here in the year 2023. As of 9/15/23 there were 641 total rigs and I forecast that it will not be anymore than 10 higher or lower than 641 total based on the past couple sets of numbers when new numbers are released on Friday, September 22nd. This is also predicted on their website Rig Count.

            The Chicago PMI (ISM-Chicago Business Barometer) measures the performance of the manufacturing and non-manufacturing sector in the Chicago region. The Chicago PMI is based on a monthly survey of purchasing managers and executives from a variety of industries in the Chicago region. These professionals are questioned about different aspects of their business, such as new orders, production, employment, supplier deliveries, and inventories. The responses are used to calculate a single condensed index number. The release dates for each variable is due at the last business day of each month. This most recent month has been above the historical average with the most recent being at 48.70 whilst the previous is more near the average range being at 42.80. Its overall highest was at 81.00 and its lowest at 20.70. I suspect it will decrease because in the past when it has reached a high of this height it has gone back down to the 40-42 range.

Source Links:

1. https://tradingeconomics.com/united-states/crude-oil-rigs (Baker Hughes) 

2. https://rigcount.bakerhughes.com/#:~:text=Baker%20Hughes%20has%20issued%20the,international%20rig%20count%20in%201975. (Baker Hughes) 

3. https://www.bls.gov/ppi/ (PPI) 

4. https://tradingeconomics.com/united-states/chicago-pmi (Chicago PMI)

5. https://www.bls.gov/web/ppi/ppi_dr.pdf 

6. https://www.investing.com/economic-calendar/chicago-pmi-38#:~:text=The%20Chicago%20Purchasing%20Managers%27%20Index,forecasting%20the%20ISM%20manufacturing%20PMI. (Chicago PMI)

7. https://www.bls.gov/web/ppi/ppi_dr.pdf (PPI)

Russian Interest rates Increasing

Russia's war in Ukraine had severely weakened its economy, not just because of a large increase on military spending by the Russian government, but the sanctions of all western powers. As Russia is 2 years into the war, its Ruble  has been getting weaker and weaker. As of late, Russia has raised its interest rate to 13 percent, which is almost double what it was prior to the war. To compare, the current US interest rate is 5.5 percent. As the war in Ukraine has taken a larger and larger toll, amid a new Ukrainian counter attack, in recent months the inflation in Ukraine has been increasing further.

"'The Bank of Russia will assess the feasibility of further increases of the key rate at its upcoming meetings,' [The Central Bank] said.

The central bank adjusted its year-end forecast for inflation to 6.0-7.0 percent from 5.0-6.5 percent. Annual inflation was running at 5.33 percent as of September 11, above the 4 percent target." - aljazeera. 

Sources Cited: 

https://www.aljazeera.com/news/2023/9/15/russias-central-bank-raises-key-interest-rate-amid-weaker-ruble 

https://www.bankrate.com/rates/interest-rates/federal-funds-rate/ 

https://www.cnn.com/europe/live-news/russia-ukraine-war-news-09-18-23/index.html

Rising Interest Rates in Japan

 In a statement made last week, Kazuo Ueda, Bank of Japan Gov., stated that they have raised the cap on long-term government bonds. This rate has increased by .5% from where it was previously. This rise in interest rates can cause a shift in investments in the United States. The Wall Street Journal states, "Japanese investors own over $1 trillion in U.S. Treasurys". With an increase in the interest rate on bonds in their own country economists are worried that this could attract investors to put their money elsewhere. Investors would rather put their money into their own country to avoid any unfavorable currency switches. This would not only affect the United States, but also other countries across the globe since Japanese investors have money in many different countries. While the impact being felt now is modest analysts are nervous about the precedent that this change is causing. They are concerned that the BOJ is taking steps toward removing yield targets altogether. This would cause U.S. stocks to decrease and would push people to buy less stock since it would be riskier. Another impact would be the decrease in value on the dollar. Before the yield target helped strengthen the value of the dollar, so the yield target being taken away will cause the value of the dollar to be weakened. In conclusion, the rising interest rates in Japan can cause the economy to slow down and have investors shift their focus away from stocks and look toward safer assets like bonds. 

Reference:

Goldfarb, S., & Yoon, F. (2023, September 11). How the Bank of Japan’s shift could play out in U.S. markets. The Wall Street Journal. https://www.wsj.com/economy/central-banking/how-the-bank-of-japans-shift-could-play-out-in-u-s-markets-b5d7acf5?mod=economy_feat1_central-banking_pos2