🧭 The Weekly Scoop

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

In the lull of summer, investors have moved back to their favorite debate: will a stronger-than-expected economy keep inflation high and force policymakers to enforce more restrictions on business activity? Let's separate this debate into why it might matter to you.

Living costs: Inflation is in a pretty good place right now. Over the past few months, living costs have been rising at the normal, inconspicuous pace that policymakers aim for. But, some trends that have brought prices down (supply chains and inventory backlogs clearing up, lower gas prices) are over. Gas prices have been climbing. If the economy picks up from here, there's no certainty inflation won't rise with it. Home prices are the most significant component of inflation, though, and should help keep it cool.

Interest rates: Borrowing is expensive, but savings accounts pay a lot now. Policymakers have been raising interest rates to control inflation, making borrowing more expensive for businesses and consumers to slow economic activity (think higher mortgage rates, less home buying, lower home prices). The risk of inflation brings the risk of higher interest rates. Investors were just getting their hopes up for lower interest rates next year. [🤓]

Your job: By all standard measures, the job market is nearly as good as it gets. It's so good that it makes investors worried about inflation. If workers are in high demand, it gives us bargaining power to ask for higher pay. Unlike rising corporate incomes, economists and investors see personal income rising too quickly as a bad thing. Too much money in consumers' pockets means more spending and higher prices on everything. So right now, good news about unemployment, low layoff rates, or unions earning wage hikes will ruffle markets.

Your stocks: The market has drifted downward a bit as the enthusiasm for economic resilience has turned into fears of overheating again. What's good for the economy might not be good for the stock market, which is driven by corporate profits. Consumers are much more cost-conscious right now. Lower prices and discounts are great for us and keep the economy pumping, but they eat into corporate profitability. Higher interest rates aren't good for the stock market either.

Overall, the economy is doing perfectly OK, but it's still going to be a bumpy road ahead. China's in a rough spot. Americans' savings from the pandemic are running out. Student loan payments restart next month. And we won't get into the political landscape, which adds more bumps, to say the least. Keep hanging on.

🐂 Reasons to be optimistic:

• Companies cut back on layoffs last week. The Labor Department reported initial unemployment claims dropped to 239,000, roughly in line with pre-pandemic averages. Unemployment is about as low as economists think to be possible, and there are still 1.6 available jobs for every unemployed person.

• Americans increased their spending in July, another sign that the economy is holding up better than expected. The Commerce Department reported retail sales jumped 0.7% in July, driven by a surge in online shopping, restaurant visits, and spending at sporting goods stores. Spending increased across most categories.

• Consumers are feeling better about the economy and inflation. The University of Michigan’s consumer sentiment survey reported an uptick in positivity about current conditions but a slight decline in future expectations. People are finding jobs easily, and wages are rising. Americans expect living costs to climb by 3.3% over the next year and by less than 3% over the next 3-5 years. A New York Federal Reserve survey confirmed similar expectations. Lower inflation expectations can be self-fulfilling.

• The US manufacturing sector may be through the worst of the downturn. With consumers and businesses purchasing less stuff, factories have been in a recession for months. The Institute for Supply Management reported national factory activity declined for the 7th straight month in July, but at a slower pace. Measures from the Federal Reserve signaled a surprise jump in national manufacturing activity in July, but regional indicators were mixed, declining in New York but doing better around Philadelphia.

• Home construction picked up in July, but there’s still a major shortage. The Commerce Department reported new construction on single-family homes rose 6.7% in July. Homebuilders have ramped up, but the available supply of new homes is still only half of what it was pre-pandemic. Despite mortgage rates deterring buyers, the home supply shortage has kept propping up prices.

🐻 Reasons to be pessimistic:

• Policymakers think the economy is strong, which poses the risk of higher inflation and higher interest rates to fight it. Minutes released from the Federal Reserve’s last policy meeting confirmed that policymakers no longer expect a recession, but the resilient economy might mean an inflation resurgence.[🤓]

• Americans’ savings accounts are dwindling. An analysis from the San Francisco Federal Reserve found that consumers are about to run out of the excess savings they built up over the pandemic from stimulus checks and lower spending during lockdowns. Some projections say it’s already gone. Inflation has eaten into everyone’s budgets.

• Businesses felt expenses jump last month. The Labor Department reported a surprise 0.3% spike in the Producer Price Index in July. [🤓] Supplies have been fairly steady or getting cheaper in recent months, leading to lower consumer prices. Costs are still only 0.8% higher than a year ago.

• Mortgage rates are approaching two-decade highs again. Mortgage finance agency Freddie Mac reported the average rate on a 30-year fixed mortgage rose to 6.96% last week, nearing the 7.08% peak from last year and the most expensive rate since 2002. Near-record home prices and expensive mortgage costs have made homes less affordable than they have been in decades.

• Homebuilders are losing optimism as expensive mortgage rates deter home buyers. The National Association of Home Builders confidence index dropped unexpectedly in August. More home builders reported cutting prices to attract buyers, and lower optimism could translate to even lower home prices.

• America’s most expensive rental market keeps getting worse. New York City leases set new records again last month. Manhattan’s median rent hit $4,400, up 2.3% from June. Brooklyn rents rose to $3,950, and Queens apartments climbed 1.9% to $3,641, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The number of lease signings declined across all boroughs, hinting that renter demand might be waning.

Corporate sustainability efforts are alive and well. America’s biggest corporations are using their massive resources to innovate on emissions and waste reduction. Those not sticking to their pledges (Amazon…) are losing critical support. Failure to live up to their promises could have significant financial repercussions.

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

• Amazon’s climate goals denounced as weak and ineffective by SBTi [🤓]

• Home Depot commits to cutting emissions and waste

• Starbucks expands its 100% reusable cup markets

• Kraft Heinz pledges to cut 20% of its virgin plastic use

• Occidental Petroleum invests big in carbon capture tech [🤓]

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

🏡 For your home

7.2% = Average 30-year mortgage rate

That’s up from 6.9% a month ago and up from 5.5% a year ago. _{Mortgage Bankers Association, 8/11/23}

$410,200 = Median existing home sales price

That’s up from $396K a month ago and down from $414K a year ago. _{National Association of Realtors, 6/30/23}

💼 For your work

239,000 = Layoffs Last Week (Initial jobless claims)

That’s down from 248,000 the week before and in line with pre-covid averages. _{Labor Dept., 8/11/23}

187,000 = New jobs added in July

That’s up from 185,000 in June and in line with pre-covid averages. _{Labor Dept., 7/31/23}

3.5% = Unemployment rate

That’s down from 3.6% in June and still near the lowest rate in 50+ years. _{Labor Dept., 7/31/23}

9.6M = Available jobs

That’s little changed from the month before and well above pre-covid averages of ~7M. _{Labor Dept., 6/30/23}

Who’s hiring: Healthcare and government organizations

Who’s firing: Transportation and business services

👜 For your wallet

3.2% = Cost of living increase (1-Year Inflation)

Living costs are 0.2% 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, 7/31/23}

3.6% = Groceries cost increase (1-Year inflation)

Groceries are 0.3% more expensive than they were a month ago. _{Bureau of Labor Statistics, 7/31/23}

$3.88 = National Average Gas Price/Gallon

That’s up from $3.57 a month ago and down from $3.94 a year ago. _{AAA., 8/17/23}

💰For your savings

0.42% = Average interest banks pay on a savings account_{, FDIC, 7/17/23}

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, +2% past year, and +54% over 5 years. _{S&P 500 Index, 8/17/23}

4.28% = The yield on the 10-Year US Treasury Bond

Yields are +4% this past week, +13% this past month, and +48% over the past year. _{US Government Bonds, 8/17/23}

-6% = This past week’s price change for Bitcoin

-9% in the past month and +18% in the past year. _{Coinbase, 8/17/23}

-7% = This past week’s price change for Ethereum

-10% in the past month and -9% in the past year. _{Coinbase, 8/17/23}

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 heats 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.

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).

Carbon capture is one of the most commonly-cited solutions for reducing carbon emissions by the fossil fuel and industrial production sectors. The process entails using technology or plants to pull greenhouse gases directly from of the air or water.

Many carbon capture projects focus on planting or preserving forests, mangroves, or other plants to convert carbon dioxide into oxygen from the air more broadly. Direct Carbon Capture technology sucks the greenhouse gases out of the air where the emissions are created, like at a factory or refinery. Learn more here.

As companies set target dates to achieve net-zero emissions, they'll be setting emission reduction targets for their Scope 1 (direct), Scope 2 (power-related), and Scope 3 (indirect) emissions. Scope 1 & 2 result from its core operations and the power it purchases to support those operations.

Scope 3 will be much bigger and more important but harder to tackle. It includes the Scope 1 & 2 emissions from all of their suppliers, the emissions from their products, and even things like employee commutes. It's the complete evaluation of how much greenhouse gas is emitted each year because the company exists.

Not all pledges are created equal. Specific terms can signal authenticity in their ambitions, like the Science Based Targets initiative (SBTi). The main concern with emissions pledges is whether the companies know how to measure their emissions, implement strategies to reduce them, or urgently reduce them. The SBTi is a partnership between CDP, the United Nations Global Compact, World Resources Institute, and the World Wide Fund for Nature. In committing to SBTi, companies pledge to reduce emissions at a necessary pace to help avoid the worst outcomes of climate change and agree to official oversight and validation of their work.