Are we headed towards recession or soft landing?

 After recent performance in the market investors believe that the economy may be headed towards a "soft landing" rather than a recession as previously imagined. The Fed still indicates that there is a 56% chance of recession, but this is down from 66% in August. Another indicator that points towards a recession is that the yield curve is still inverted. Some experts believe a recession is just being delayed. While inflation has dropped significantly it still remains much higher than the Fed hopes. The continuous rise in interest rates this year (leading to the highest level in 22 years) are another indicator experts believe still points towards a recession.

Unemployment rates are current at a historically low rate (3.8%) which is a lead indicator for experts to believe we could be headed towards a soft landing. Experts believe if the market can stay between decreasing inflation and a still growing economy than we have a real chance of the soft landing. Ultimately, we will have to see how the market plays out over the next month and heading into 2024.  

Duggan, Wayne. “Recession or Soft Landing: What’s next for the U.S. Economy?” Forbes, October 17, 2023. https://www.forbes.com/advisor/investing/is-a-recession-coming/#:~:text=GDP%20grew%20at%20an%20annual,there’s%20no%20recession%20in%20sight.

The Job Market and A Possible Recession Approaching

 Link to article: Here's where the jobs are for October 2023 — in one chart

CNBC released an article titled “Here’s Where the Jobs Are for October” which showed a distribution of newly added jobs from the previous month. 

The report stated that the labor market may be cooling off with many job sectors seeing little to no growth, or even negative growth. Healthcare and social assistance saw 77,000 added jobs to their sector. Another large sector in which many jobs were added was the private education sector, given that 89,0000 jobs were added to that group. 

However, given that many students are studying economics, finance, accounting, or some business-related degree in this course, financial activity jobs decreased by 2,000. Whereas, the professional business services sector added 15000 jobs. 

One positive thing to take away from the article was that government employment has now returned to its pre-pandemic level of employment. One negative takeaway is that many trucking workers are losing jobs and looking for work but are finding it very difficult to do so. 

As we know, when recessionary times come, employers lay off workers and begin hiring workers for lower wages than previously offered. Therefore, given the low amount of added jobs, an increase in workers being laid off, and seeing job markets decreasing, this may be an indicator of a recessionary period approaching. 

• Kiley Hardyman

Good Month for Stocks and Inflation - Interest rates set to drop early-mid 2024

The past month has been great for the stock market as the S&P 500(8.9%), NASDAQ(10.9%), and Dow Jones have all had their best month this year. Even lagging industries had very good months. Inflation has also hit a low since 2021. Consumer spending expenditure (CPE) grew 3% this month slowing down from 3.4% last month. Along with CPI, CPE is a leading indicator of inflation. This has led to the likeliness of cuts in the interest rates by June next year to increase 32% from last month. Making it a 92% chance currently. These go against last years forecasts of a possible recession, showing that the predictions are not always accurate. Therefore the predictions for next year are not guaranteed. 

https://finance.yahoo.com/news/stocks-post-best-month-since-2022-as-investors-look-ahead-to-rate-cuts-211309899.html

https://finance.yahoo.com/news/inflation-hits-lowest-level-since-2021-feds-preferred-gauge-shows-133230834.html

Lithium Mines in North Carolina Revived

  In terms of the future of our world, the EV industry must develop a competitive market to create a cleaner alternative to gas powered vehicles which damage the environment. In order to do this lithium must be in possession to create the batteries for cars. Usually China dominates this market and has a majority of mines worldwide. In this article it is talked about how North Carolina has lithium mines to offer and how they had been mainly dormant since the 1980’s. It is also talked about how the demand for lithium has rocketed in the EV market and since Joe Biden has made the initiative for more of an EV market the demand is high. China is usually the main supplier of lithium and for North Carolina to have the biggest deposit in the US means the US can now supply their own lithium instead of helping to fuel China’s economy. 

In terms of what this all means is that the US can compete with China in manufacturing things with lithium as they have their own supply. This also means that the market for EV’s will increase. Another effect that this will have is that there will be more jobs available for low income workers in North Carolina which will help to fuel the economy. 

https://www.nytimes.com/2023/11/30/business/electric-vehicle-north-carolina-lithium-mining.html

Federal Reserve’s preferred inflation gauge shows price pressures continuing to cool

 The preferred inflation gauge of the Federal Reserve was steady, indicating a reduction in price pressure. Consumer prices increased by 3% in October, down from 3.4% in September. This indicates that the benchmark rate will probably remain steady at the next Fed meeting. Grocery prices have increased slightly, although overall inflation is declining and is in line with the Fed's objectives. It is anticipated that high borrowing prices will impede US economic growth, tempering the 5.2% recorded. The drop in spending, especially when it comes to credit-based goods like furniture and cars, suggests that the Federal Reserve's rate hikes are having an impact on consumer behavior and may even result in price reductions. As indicated by a prominent official, the Fed, which has raised rates eleven times since March 2022, would contemplate lowering rates by spring if inflation keeps declining. 

The post-pandemic general price level is still much higher, despite a slowdown in inflation, which has an impact on Americans' economic prospects. Because the PCE index takes inflation-related changes in consumer purchasing behavior into account, the Fed supports it. It takes into consideration the switch from pricey national brands to more reasonably priced store brands.

https://apnews.com/article/inflation-prices-federal-reserve-rates-economy-spending-7556d8c45993a0fee9dedb3765407468

Is Fed ready to stave inflation?

Two members of the Federal Reserve Board of Governor's spoke to two separate audiences about the reduction of inflation. Both governors have been known to be "hawkish" in the interest of combatting raising inflation with higher rate hikes. The target goal of 2% is definitely manageable in the near future according to both governors. How the U.S. gets to 2% is where the two diverge into separates courses of action. 

Federal Reserve Board of Governor's member Christopher Waller is typically known for favoring higher rates to battle inflation. However, he sees a cut in rates from the central bank as long a price increases can also keep lowering. Meaning as long as the market sees a stable increase of production and consumption then the central bank will be incentivized by lower exceeding rates. 

Federal Reserve Board of Governor's member Michelle Bowman's take on the subject infers the fed will need to further raise rates in order to reach the 2% goal. Bowman urges the dangers in inflation and also does not trust the market or the workforce to continue Waller's thought processes. 

Christopher Waller hedged his statements on reaching their two percent goal by not estimating a time of achievement. Waller explains level of uncertainty the market presents and the belief that the FMOC did enough to achieve price stability. 

https://finance.yahoo.com/news/fed-governors-bowman-waller-clash-on-direction-of-interest-rates-155221195.html

Consumer Spending Decrease

The Wall Street Journal has just put out a statement that the October consumer spending numbers are down from where they were in September. The article says that this new number is the lowest it has been since May of this year. This decrease in spending is not shocking to me. It honestly is to be expected at this time of year. People are preparing for the holiday season and student loans are starting back during this time of the year. The average consumer is spending to spend more later on. This is normal for the average American to want to save only to spend more in the future. 

Some economists speculate that this dip in consumer spending and slowing inflation will lead to the Fed finally slowing the increases in interest rates. It will be interesting since even though these numbers are decreasing the overall economy is still growing. The new GDP numbers that came out support this statement. It will be interesting to see how the Fed responds to these new numbers. 

Article:

https://www.wsj.com/economy/consumers/inflation-consumer-spending-personal-income-october-2023-6a1ecb1d?mod=economy_lead_story 

The Strategical Changes in Private Equity

 As technology and interest rates are changing through the corporate world, private equity starts to contain more advantages than public market investing when it comes to large-scale companies. The predicted time ahead of us that will have slower economic growth, and higher inflation. Because of this higher interest rates which will serve as trouble for operators and investors. Even with a higher cost of capital, private equity should be able to create attractive values for investors, but to do this they will have to change their strategical strategy. In the past, private equity uses control-oriented ownership, which allows partners to have more of say in the plans of companies. By doing this they have generated 15% of internal rates of returns over the past 20 years. 

The different ways to buyout investment vary, but the drivers of return can be distinguished into four categories. These are revenue growth, margin expansion, changes in valuation, and financial structuring and leveraging. As time goes on private equity is still predicted to succeed, however, margin expansion and revenue growth are now more than ever supposed to be the main successes while financial structuring and leveraging are becoming less important. 

Focusing on boosting revenue, private equity strategies are to prioritize organic growth, for it is believed to increase value creations. To achieve this growth, it is needed to fix broken business models, and super charge healthy but slower growing business models. 

For margin expansion the key shift is going from growth to efficiency because capital cost has risen it is needed to rely on optimizing processes, enhancing supply chains and explaining the reality of new technological impacts to companies face to face, highlighting opportunistical advantages for the future. 

With private equity flipping the value creation playbook it will continue the trend of private equity having an advantage over the public market.

Sources: How private equity strategies are changing amid higher-for-longer rates (goldmansachs.com)

Economic Technology's Impact on the US in the Past 20 Years

    Economic technology, or financial technology, has dramatically changed the financial and business scene in the United States throughout the last 20 years. The widespread use of mobile financial apps, online banking, and digital payment systems has completely changed how people and businesses handle their money.

    The rise of massive online retailers like Amazon has influenced consumer behavior and has contributed to the demise of conventional storefronts. Additionally, traditional views of money and finance have been reshaped by the rise of cryptocurrencies and other technological currencies. 

    In addition to improving productivity, these advances have created rules and regulations that have forced a look of the current financial structures. The future of the US economy will be greatly influenced by how innovation and regulation interact as the country continues to adopt economic technologies.

Sources-

https://www.weforum.org/agenda/2020/11/heres-how-technology-has-changed-and-changed-us-over-the-past-20-years/

How much have the Hawaii fires have affected the economy?

    

       Studies have showed that the fires that ravaged Hawaii in August of this year has caused between $4 billion and $6 billion in losses. Losses show up not only in the land that has been destroyed but it also has an effect on the businesses that are still there. When it comes to the land itself, it is estimated that more than 2,170 acres, or 3.4 miles have been damaged due to these fires More than 100 people have been confirmed dead as a result of the catastrophe, while more than 1,000 remain unaccounted for.

    The state's economic losses using building-level damage assessments from multiple sources, in addition to damage maps from the Maui Emergency Management Agency. The estimate of Hawaii's economic losses does not factor in the blaze's effect on the state's gross domestic product; government spending on the response to the catastrophe or the social cost of the fires, as the daily lives of families and communities are forever changed.

        With the fires comes rebuild which will is estimated to cost around 5.5 billion dollars at the moment. Insurance is expected to pay up to 75% of this cost, but funds will still be needed to raise to complete the rebuild. The businesses however that were able to avoid the fire have been seeing a decline in sales due to the effect the fire has had on tourism. With tourism down businesses will need to find a way to survive until the rebuild is complete and tourism rises again. 

Sources: Hawaii's economic toll from wildfires is up to $6 billion, Moody's estimates - CBS News