🧭 The Weekly Scoop

Hey friends, enjoy the first weekend of fall! Don’t miss our newest section on significant business trends. There’s some spicy drama this week.

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

The dull period continues. The question we often get: where do we go from here? And as we often remind you, no one knows. It’s a little easier to spot trends in the economy. Usually, the market will give you a pretty good prediction of what will happen in the real economy since it essentially shows you the median expectation of all investors’ projections for the next 3-6 months. Since the market has moved sideways in this boring pattern for the last few months, you can also expect a bleh economy for the next few months. The market seems more likely to trend downward from here than surprise to the upside.

Some things that could go wrong from here:

• Oil/energy prices keep rising, straining people’s budgets further and shrinking consumption in an important holiday quarter for businesses [🤓]

• Other kinds of inflation pick up unexpectedly (doesn’t seem to be the trend, but could surprise. This would be the worst case for the market because it would mean higher interest rates, too)[🤓]

• Possible government shutdown (not a huge impact, but puts more people out of work)

• People get more strained as wages stay low, savings deplete, student loan payments restart, and people’s loans start to roll over into higher interest rates

• High interest rates strain people who purchased rental properties and homes for Airbnbs, sparking a wave of foreclosures and ripples

• China-US cold trade/tech war escalates, limiting growth and trade

• Corporate profits sink lower as companies find they need to discount further to attract customers, hurting stocks

Potential positive surprises:

• China’s economy rebounds further and sparks more growth around the world

• Business discounting continues into the holiday season, cutting back living costs

• Inflation goes away faster than expected, policymakers signal interest rate cuts, [🤓] and the market celebrates

• The war in Ukraine ends, easing global trade and sparking more global growth

• Companies report surprising profits from all of the cost-cutting this year while sales start to pick up, spurring optimism and market enthusiasm

Most of these are realistic events for the next 3-6 months. We’re headed into the “mild recession” period that many major companies and economists talked about in the spring. We may technically avoid whatever policymakers define as a recession, but it won’t feel great for most people. Make sure you have your emergency savings built up, your investment contributions on autopilot, and your scoops on read. We’ll keep you informed.

🐂 Reasons to be optimistic:

• Policymakers are surprised by how well the economy is doing. The Federal Reserve raised its economic growth and employment projections for the year. Its median real Gross Domestic Product (GDP) expectation for 2023 more than doubled from 1% to 2.1% since its June projections. The median expected unemployment rate for the end of the year went down from 4.1% to 3.8%, the historically low level it’s at now.

• Companies have cut back on layoffs. The Labor Department reported initial unemployment claims sank last week to 201,000, the lowest level since January. Unemployment is historically low, and there are still more than 1.5 available jobs for every unemployed person. Policymakers want to cool business activity until the demand for workers more closely meets the supply.

• Ukraine might be able to help the world avoid a food shortage. A cargo vessel carrying grain has left the Ukrainian Black Sea port of Chornomorsk for the first time since Russia ended an agreement to allow trade through the sea route. Before the Russian invasion, Ukraine produced nearly a fifth of the world’s wheat exports, but the interruption of trade pushed global food prices to record highs. Wheat prices have fallen to the lowest level in over a year as the world hopes for more safe passage.

• The government has been on a hiring spree this year, filling in roles still left open from the pandemic. Public-sector jobs in the US have increased by 327,000 in 2023, nearly one-fifth of all new jobs created this year, compared to just 5% last year. Government agencies are offering competitive perks and pay raises to attract talent. This is the most the government has contributed to overall hiring in over two decades.

• The American manufacturing industry has been in a recession all year, but it might be hitting a bottom. With consumers and businesses purchasing less stuff, factory activity has been much lower than usual. Measures of business activity from the Federal Reserve in New York showed a surprising jump in September after a decline in August, while the opposite happened around Philadelphia. The inconsistency might indicate a coming turnaround.

🐻 Reasons to be pessimistic:

• The strong economy has the Federal Reserve worried that inflation isn’t going away soon. While the Fed chose not to raise baseline interest rates again this month, it expects to keep interest rates higher for longer. High rates will make it more expensive to charge your credit card, lease a new car, borrow for school, or take out a mortgage - slowing economic activity that’s causing inflation. [🤓]

• Mortgage rates keep going higher. The Mortgage Bankers Association reported the average 30-year fixed-rate mortgage increased last week to 7.31%, the highest level in decades. That makes mortgages almost 20% more expensive than a year ago. Mortgage refinancing applications unexpectedly surged by 13% last week despite rising rates, possibly driven by concerns they could get even more costly.

• Expensive mortgage rates have turned away buyers and stalled new home building. The Commerce Department reported new home construction sank 11% in August to the lowest level since June 2020. High mortgage rates have sellers hanging onto their existing cheaper mortgages, shrinking the supply of homes on the market. Newly built homes have been booming until now. Home builders are losing confidence, but a 7% jump in new construction permits in August might be a signal of a rebound.

• Homes are both unaffordable and unavailable right now, leading to a steep dropoff in home-buying activity. The National Association of Realtors reported a slow month in August, selling the fewest homes since January and 15% fewer than the year prior. Expensive mortgage rates have scared away sellers who want to hold on to their affordable homes, leading to the lowest supply of available homes on record for August. The low supply keeps prices high, and rising mortgage rates may worsen things.

• Stores are preparing for a slower holiday shopping season as Americans manage tighter budgets. US retailers expect to hire just 410,000 seasonal workers for the upcoming holiday quarter, according to a report by Challenger, Gray & Christmas. That’s 26% fewer workers than in 2021 and the fewest since 2008. Retailers are hiring cautiously amidst higher wage demands.

• Tens of millions of Americans will start losing a few hundred dollars per month again as federal student loan payments resume on October 1st. That could amount to $100 billion less consumer spending over the next twelve months, causing concern for major retailers like Target and Walmart.

ICYMI - it’s Climate Week in NYC, and the climate drama has been steamy!

Two of the most significant rolling developments have surrounded BP and Exxon Mobil. At the end of last week, energy giant BP abruptly dumped its CEO. It was supposedly due to undisclosed relationships with coworkers, but later reports revealed that the board knew about these relationships when he was hired. And there seems to be no clear replacement in the works a week later. BP despite having a terrible environmental record and tempering its ambitious fossil fuels phase-out plan, still has a phase-out plan that includes investing half its annual budget into clean energy. The big question remains whether the clean energy transition will carry on to the new management.

The other big shift was Exxon Mobil. The same week the Wall Street Journal called out Exxon’s climate change denial disinformation campaign, California filed a lawsuit against them and every major oil company for damages from climate change. When growing calls for accountability meet escalating financial liability, investors start to rethink their business model. 👀👀

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

• BP dumps its clean energy CEO, putting transition plans at risk

• BP’s reasoning for firing clean energy CEO gets murky

• Exxon Mobil misled the public about climate change, new docs reveal

• Exxon Mobil faces mounting lawsuits from climate disinformation

• Shell abandons carbon offset pledge

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

🏡 For your home

7.3% = Average 30-year mortgage rate

That’s about the same as it was a month ago and up from 6.3% a year ago. _{Mortgage Bankers Association, 9/15/23}

$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

201,000 = Layoffs Last Week (Initial jobless claims)

That’s down from 220,000 the week before and in line with pre-covid averages. _{Labor Dept., 9/15/23}

187,000 = New jobs added in August

That’s up from 157,000 in July and in line with pre-covid averages. _{Labor Dept., 8/31/23}

3.8% = Unemployment rate

That’s up from 3.5% in July and still near the lowest rate in 50+ years. _{Labor Dept., 8/31/23}

8.8M = Available jobs

That’s down from 9.2M in June and well above pre-covid averages of ~7M. _{Labor Dept., 7/31/23}

Who’s hiring: Information technology and transportation

Who’s firing: Healthcare and business services

👜 For your wallet

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

Living costs are 0.6% 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, 8/31/23}

3.0% = Groceries cost increase (1-Year inflation)

Groceries are 0.2% more expensive than they were a month ago. _{Bureau of Labor Statistics, 8/31/23}

$3.87 = National Average Gas Price/Gallon

That’s about the same as it was a month ago and up from $3.68 a year ago. _{AAA., 9/21/23}

💰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

-4% = This past week’s change in the US Stock Market

-2% past month, +12% past year, and +48% over 5 years. _{S&P 500 Index, 9/21/23}

4.49% = The yield on the 10-Year US Treasury Bond

Yields are +5% this past week, +4% this past month, and +27% over the past year. _{US Government Bonds, 9/21/23}

-1% = This past week’s price change for Bitcoin

+2% in the past month and +44% in the past year. _{Coinbase, 9/21/23}

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

-5% in the past month and +27% in the past year. _{Coinbase, 9/21/23}

Prices for commodities like oil are notoriously volatile and unpredictable. The main drivers are supply and demand, but government and institutional decisions can artificially manipulate both sides of that equation.

The planet has plenty of oil, but its extraction and distribution depend on geopolitical agreements and corporate business decisions. Oil companies decide how much they want to pump by analyzing their costs and potential profits. In many nations, the government decides how much oil they want to export to the world. The Organization of the Petroleum Exporting Countries (OPEC) is a group of the major oil nations, led by Saudi Arabia, that collude on the amount of oil they export to control global prices. On top of that, oil prices are then affected by investors who trade financial securities to speculate on future oil prices. It’s a complicated mess.

The Federal Reserve, aka the Central Bank, aka The Fed, is in charge of our whole money system. When the economy is struggling, the Fed lowers baseline interest rates to make it cheaper for consumers and businesses to borrow and spend (lower rates on business loans, mortgages, credit cards, car leases, etc.)

The Fed also pumps more money into the system by buying bonds with new dollars that it essentially speaks into existence. The additional cash keeps the pipes flowing as the borrowing and spending heat up, stimulating economic activity.

Once the economy's strong enough to stand on its own, the Fed starts to raise interest rates and pull back some of that money to ensure the economy doesn't overheat. Inflation is the Fed's heat gauge. The gauge was reading very hot but has been cooling lately.

So everyone's watching how long the Fed will keep restricting the economy with high rates if inflation keeps cooling. The Fed hopes to get living costs under control without sparking mass unemployment.

A labor union is an organization of workers that band together to collectively bargain for improvements to their working conditions, wages, and benefits. Any industry can have a union. It starts by hosting some form of election in the workplace to acknowledge that the workers of that unit would like to unionize. Then, it expands to a more formalized agreement and negotiation process. New union workers can choose to be represented as part of an established, industry-wide union. Employers can dissuade workers from unionizing, but it's illegal to threaten or coerce. That grey line in between is for the lawyers.