🧭 The Weekly Scoop

Hey friends, it’s Friday the 13th. Be careful out there. 👻

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Here’s what you need to know this week.…

This week was all about the inflation reports. Investors haven’t figured out the economic impacts of the war in Israel yet, so the focus remained on what’s happening with inflation and interest rates and how policymakers will respond to it.

Inflation seems to be mostly under control. The last few months have demonstrated a trend that we’ve moved past the pandemic stimulus-fueled disruptions of regular economic activity and on to new issues. Gas prices are always volatile, so policymakers tend to strip them out when evaluating inflation. However, when Americans are stretched as thin as they are now, spiking gas and home energy prices can be much more disruptive. They have a higher emotional impact, especially after what we’ve just been through.

The problem with inflation at the level it’s at now isn’t the inherent rate of change. It’s that wages aren’t catching up or even keeping up with the cost of living. When prices of goods and services jump 5-10%, that disrupts everything. We saw that last year. It’s unmanageable for a business owner, consumer - anyone. Costs rising at the current rate aren’t that noticeable, but Americans’ wealth and income have fallen so far behind that each month gets a little more challenging. Wage growth was already pitiful for the last decade. The past few years have stretched people well beyond their means. That’s why these strikes are getting so severe. Corporate execs are shocked by the demands for 40-50% compensation increases, but that’s the repercussion of squeezing wages so low for so long. Workers need to catch up.

The other big focus this past week has been interest rates. Concerns about the economy have inflated interest rates that determine the cost of long-term borrowing, like mortgages, to the highest levels in a very long time. Policymakers have pushed up rates a lot, and the market has pushed them higher. The plan to slow the economy to cool inflation is working, but now people are waiting to hear when this will all be over.

It will be essential to watch how these strikes and wages affect broader pricing.

🐂 Reasons to be optimistic:

• The US economy is doing better than most projected. The International Monetary Fund (IMF) raised its projection for US economic growth for 2023 by 0.3 percentage points to 2.1% and hiked next year's forecast by 0.5 percentage points to 1.5%. Businesses have kept investing more than expected, and consumer spending has been surprisingly resilient. The IMF still expects that the best is behind us for now, as Americans face slower wage growth, difficult borrowing conditions, less hiring, and declining savings.

• Inflation seems to be trending in the right direction, except for gas prices. The Bureau of Labor Statistics’ Consumer Price Index rose 0.4%, driven mainly by rising rent and energy costs. [🤓] More than half of the month’s increase in living expenses came from higher shelter costs, which rose 0.6%. That means tangible inflation is likely lower than it seems. Government home pricing statistics are always a little stale and use funky calculations. More real-time indicators have shown home and rent prices rising much more slowly or decreasing in most areas. Gas prices were another major contributor to the higher living costs. When stripping out more volatile food and gas prices, core CPI rose only 0.3%. Overall, living costs are still 3.7% higher than a year ago. It seems most things are returning to a more normal, inconspicuous level of price inflation.

• Businesses are facing less inflation, but rising gas prices are painful. The Labor Department reported a 0.5% increase in the Producer Price Index for September. [🤓] That’s lower than July and August but still higher than policymakers would hope for. Gasoline prices surged 5.4% in the month, accounting for more than 40% of the inflation in goods prices. When stripping out volatile food and energy prices, the core PPI rose only 0.2%, which is a much more normal pace.

• Layoff rates are still very low. The Labor Department reported initial unemployment claims stayed the same last week at 209,000, lower than economists expected. Unemployment is historically low, and there are still more than 1.5 available jobs for every unemployed person.

🐻 Reasons to be pessimistic:

• Even with such significant worker demand, wages aren’t rising that quickly. The Labor Department reported average hourly earnings rose only 0.2% in September, up 4.2% over the past twelve months.

• Wages aren’t keeping up with rising living costs. The Labor Department reported real average hourly earnings for all employees declined by 0.2% in September. Wages had started catching up earlier in the year, but that trend has reversed recently. The average amount workers earn each week buys them less stuff than it did one year ago.

• Policymakers don't expect to make borrowing easier anytime soon. Newly released minutes from the Federal Reserve’s last meeting revealed a split across committee members as to whether they want to keep raising interest rates to make borrowing more expensive and slow the economy to fight inflation. Since the last meeting, long-term interest rates that affect mortgages and other corporate borrowing have become much more costly, prompting several committee members to publicly comment that rates are already restrictive enough. Even if rates don’t go higher from here, the minutes and recent committee member comments have made clear that policymakers don’t expect to reduce interest rates anytime soon.

• Americans are worried about living costs getting worse. According to the Federal Reserve Bank of New York survey, US consumer expectations for inflation over the next few years increased this month, expecting prices to rise by 3.7% over the next year and roughly 3% annually for the next three years. Inflation expectations are important because they can be self-fulfilling. If consumers and businesses expect higher costs, they’ll buy more and raise prices now in anticipation. Although the prices of goods and services aren’t rising as quickly as last year, inflation is still higher than policymakers want.

• Small business owners keep losing hope for an economic rebound. The National Federation of Independent Business (NFIB) said the number of small business owners expecting more challenging operating conditions over the next six months rose to the highest since May. Small firms say getting a loan is more difficult than a few months ago. Amidst rising costs for supplies and higher wages, many businesses have been forced to raise their prices and cut back on hiring.

• Business bankruptcies are on the rise, particularly with large corporations. The number of bankruptcy filings for companies with over $100M in assets tripled in the first half of the year, according to analysis by the Wall Street Journal. The total number is not yet concerning, but the size, systemic importance, and potential shockwaves of the companies going under are raising alarms. The bankruptcies have crossed industries, from disruptive banking failures like SVB to retailers like Bed Bath & Beyond or trucking giant Yellow.

• Consumers are struggling with higher interest rates. The New York Federal Reserve's survey showed that people are more worried about missing debt payments than they have been since May 2020. More people say they’re worse off than they were a year ago, finding it harder to increase their income or borrow money.

The labor movement gained more fire this week as workers retaliated against corporate executives dragging their feet in negotiations. Chevron workers went back on strike after the gas giant failed to keep up promises. Autoworkers ramped up strikes and shut down Ford’s most profitable factory.

Meanwhile, the Labor Department confirmed that workers’ wages aren’t keeping up with rising living costs. Workers demand a living wage. One-third of workers at America’s 1,000 largest public companies don’t earn enough to cover basic living expenses for a single adult. Young professionals have been forced to work multiple jobs just to get by. In a study of over 22,000 young adults, Deloitte found that nearly half of all Gen Z adults have either a full or part-time job in addition to their main one. Roughly 37% of Millennials have a second job. The driving force is financial concerns.

Click to dig in & vote your reaction, see how others feel

• Chevron workers go back on strike

• Walgreens pharmacists stage walkouts over working conditions

• MGM casino workers start picketing

• General Motors ends Canadian union worker strike

• Ford union workers take down Ford’s most profitable factory

(These links only work for 24 hours while the story is live)

🏡 For your home

7.7% = Average 30-year mortgage rate

That’s up from 7.3% a month ago and up from 6.8% a year ago. _{Mortgage Bankers Association, 10/6/23}

$407,100 = Median existing home sales price

That’s up from $406K the month before and up from $392K a year ago. _{National Association of Realtors, 8/31/23}

💼 For your work

209,000 = Layoffs Last Week (Initial jobless claims)

That’s the same as last week and in line with pre-covid averages. _{Labor Dept., 10/6/23}

336,000 = New jobs added in September

That’s up from 227,000 in August and above pre-covid averages. _{Labor Dept., 9/30/23}

3.8% = Unemployment rate in September

That’s the same as August and still near the lowest rate in 50+ years. _{Labor Dept., 9/30/23}

9.6M = Available jobs in August

That’s up from 8.9M in July and well above pre-covid averages of ~7M. _{Labor Dept., 8/31/23}

Who’s hiring: Professional and Business Services, Leisure and Hospitality

Who’s firing: Arts, Entertainment, and Recreation

👜 For your wallet

3.7% = Cost of living increase (1-Year Inflation)

Living costs are 0.4% higher than the month before. Normal inflation sees prices rise by 0% to 0.2% per month, 1-2% per year. _{Bureau of Labor Statistics, 9/30/23}

2.4% = Groceries cost increase (1-Year inflation)

Groceries are 0.1% more expensive than they were a month ago. _{Bureau of Labor Statistics, 9/30/23}

$3.65 = National Average Gas Price/Gallon

That’s down from $3.84 a month ago and down from $3.92 a year ago. _{AAA., 10/12/23}

💰For your savings

0.45% = Average interest banks pay on a savings account_{, FDIC, 9/18/23}

5.50% = Interest rate banks earn on their savings accounts_{, Federal Reserve, 7/26/23}

The Federal Reserve has raised baseline interest rates from 0% to 5.50% in the past year. Make sure your bank is paying you higher interest on your savings.

💸For your investments

+3% = This past week’s change in the US Stock Market

-3% past month, +21% past year, and +57% over 5 years. _{S&P 500 Index, 10/12/23}

4.70% = The yield on the 10-Year US Treasury Bond

Yields are -1% this past week, +10% this past month, and +19% over the past year. _{US Government Bonds, 10/12/23}

-3% = This past week’s price change for Bitcoin

+3% in the past month and +40% in the past year. _{Coinbase, 10/12/23}

-5% = This past week’s price change for Ethereum

-4% in the past month and +18% in the past year. _{Coinbase, 10/12/23}

The Consumer Price Index (CPI) is one of the main ways economists track inflation. Inflation is the rate at which things get more expensive. The CPI looks at a set basket of stuff your average consumer spends money on and tracks how much it costs each month. The rate of change is inflation.

One important thing to know: inflation is most often quoted as an annual number, like "inflation rose 3.7% in September," but the annual number might not always be the best reference in unusual times like the past two years. If we're trying to understand whether living costs are still surging, the monthly rates of change are most helpful. If prices rose by 0.6% in one month and 0.4% in the next, inflation declined, regardless of the change over the past twelve months. The annual number helps us remember the pain we've experienced, but monthly numbers help us understand what's happening today.

Prices rarely go down. It's normal for things to get more expensive. You'll never be able to buy a Coke for a quarter again, but that's okay. Low inflation (~1-2% per year, 0.0-0.2% per month) is standard and almost unnoticeable. High inflation, like we saw last year, with prices of essential goods going up nearly 7-10% per year, is a problem. It's unmanageable, especially if our incomes aren't rising in tandem. Low inflation, where incomes keep up or outpace rising living costs, is the goal for economic policy, not zero or negative inflation.

The Producer Price Index (PPI) is another important indicator for economists tracking inflation. Inflation is the rate at which things get more expensive.

Unlike the Consumer Price Index (CPI), which looks at a set basket of stuff your average consumer spends money on and tracks how much it costs each month, the PPI tracks the prices of wholesale goods - like how much Ford pays for the tires it installs in its cars before selling them to you. The rate of change in those prices is inflation.

Prices rarely decline. Inflation, aka rising prices, is only a problem when it's really fast (3%+ per year).