🧭 The Weekly Scoop

Hey friends, Happy Friday! Look out for our Explained on the state of inequality this weekend.

Welcome to our 84 new subscribers this week! Take a second and share the scoop!

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

This week felt like a significant shift in the narrative as the stock market jumped to a new 2023 high. Investors seem to be coming closer to agreement on where the economy is headed, with fewer believing we’re headed to a catastrophic recession and many thinking it’s likely going to be more of a light slowdown over the next 6-12 months. No one has a crystal ball, but group emotion heavily influences the economy and markets. The more confidence people have in the economy, the more they spend and invest, spurring more growth. But it hasn’t all been about pessimism. There’s been one big, uncontrollable factor holding everything back: inflation.

The rapid rise in living costs has stressed everyone. Wallets have tightened, and shoppers have shifted focus to deals and essentials. Consumers power two-thirds of the economy, so our ability and willingness to spend determines just about everything.

Fortunately, the trend of disinflation (prices of stuff rising less quickly) seems to be solidly confirmed by this week’s inflation report. While we can’t count on stuff getting cheaper, we can hope that prices stop rising faster than our incomes do. Prices rise - that’s a standard economy. But it’s usually at a pace we don’t really notice (~1-2% per year). Inflation is much closer to that imperceptible pace on a monthly basis now, and importantly, wages are catching up.

The second big problem with inflation is the cure. The primary way to slow inflation is to restrict the economy, forcing consumers and businesses to spend less by making it more expensive to borrow. Unfortunately, there’s no easy dial for this. The Federal Reserve launched the most aggressive policy experiment in decades, hoping to control inflation without tanking the economy. [🤓] Few had confidence in the Fed not to overshoot and freeze the country into recession. The jury is still out, but the economy is still running pretty resiliently while policymakers look to call “mission accomplished” on inflation. Companies are still hiring, layoffs have slowed, incomes have started catching up, the stock market’s rallied 25% from its lows, and a company that sells water in a can could go public with a valuation nearing $1 billion.🤯 

There are plenty of risks on the horizon for the economy and the market (student loan payments, disinflation eating into corporate profits, and real estate market uncertainty, to name a few), but for now, the mood is high.

🐂 Reasons to be optimistic:

• Policymakers think the economy's improving. In its bi-quarterly economic report, the Federal Reserve [🤓] highlighted a small uptick in economic activity, marked by pretty resilient consumer spending and businesses managing costs and finding workers more easily.

• Fewer people got laid off last week than expected. The Labor Department reported initial jobless claims fell to 237,000, in line with pre-pandemic averages.

• Unemployment is low, and wages are rising. The Labor Department on Friday reported total employment rose by 209,000 in June, averaging 278,000 per month over the first half of the year. That’s well below last year’s averages but in line with pre-pandemic levels. Unemployment is still near 50-year lows at 3.6%. Wages rose 0.4% in June. Average hourly earnings are now 4.4% higher than a year ago.

• Living costs aren't rising as quickly anymore, aka lower inflation. The Bureau of Labor Statistics reported the Consumer Price Index [🤓] rose only 0.2% in June, slightly faster than in May, but still at a much more normal rate of up to 0.2% per month. The average cost of everything we spend money on is now only 3% higher than it was a year ago. Unlike most of this year, the slower overall inflation wasn’t driven by a big decline in energy costs offsetting other rising prices. Core expenses mostly just stopped rising as quickly.

• Some stuff's already getting cheaper. Basic foods like dairy, meat, eggs, and beverages all saw shrinking price tags. So did used cars, fuel, and airline fares.

• Used cars are finally getting cheaper. The Manheim Used Vehicle Index dropped in June for the third straight month by 4.2%, one of the steepest declines on record. Pandemic disruptions led to shortages in new cars and sent used car prices soaring over the last few years. Prices are close to 2021 levels now.

• Businesses aren’t really dealing with inflation anymore. The Labor Department’s Producer Price Index (PPI) rose only 0.1% in June after falling -0.4% in May. [🤓] Supply costs for businesses are only 0.1% higher than a year ago. Costs for consumers are still 3% higher than a year ago.

• Our wages are finally starting to catch up with our living costs. The Labor Department’s inflation and jobs reports this past week showed average hourly earnings have grown 1.2% faster than the cost of living in the past year. Prices for everything from food to gas and rent have been rising faster than salaries for nearly two years. The last four months have started to turn things around.

🐻 Reasons to be pessimistic:

• People seem to be having a slightly harder time finding work. The Labor Department reported continuing claims, which include those who have been unemployed for longer than one week, rose for the first time in four weeks last week. Unemployment still remains near historic lows.

• Consumers expect inflation to stick around. The Federal Reserve's Survey of Consumer Expectations revealed Americans believe living costs will rise by 3.8% over the next year and rise by 3% per year on average over the next 3-5 years. Expectations are important because they can become self-fulfilling.

• Home prices are still hitting new highs. The Home Price Index from market analytics provider Black Knight rose 0.7% in May to new record levels. High mortgage costs dried up buyer demand at the end of the year, but extremely low home supply has kept prices from falling much.

• Russia’s threatening to make food more expensive for everyone by not renewing a grain export agreement with Ukraine. 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. The agreement set to expire next week allowed shipments to continue and resolved a global food crisis.

• Expensive loan rates have consumers cutting back on borrowing. The Federal Reserve reported the first decline since April 2020 in non-revolving credit like education and auto loans. Credit card debt rose, but at a much slower pace than expected. The average credit card rate from commercial banks hit 21% in May, the most expensive rate in over 50 years. Consumer spending powers two-thirds of the economy, and a slowdown in debt means a slowdown in spending.

• The country’s most expensive rental market has been breaking records. The median price to lease a Manhattan apartment fell slightly to $4,300 per month in June after three straight months breaching new all-time highs, according to appraiser Miller Samuel and brokerage Douglas Elliman Real Estate. Brooklyn and Queens prices kept surging, so the market experts don’t expect the price relief to last long

🏡 For your home

7.1% = Average 30-year mortgage rate

That’s up from 6.8% a month ago and up from 5.7% a year ago. _{Mortgage Bankers Association, 7/6/23}

$396,100 = Median existing home sales price

That’s up from $386K a month ago and down from $409K a year ago. _{National Association of Realtors, 5/31/23}

💼 For your work

237,000 = Layoffs Last Week (Initial jobless claims)

That’s down from 248,000 the week before and in line with pre-covid averages. _{Labor Dept., 7/6/23}

209,000 = New jobs added in June

That’s down from 306K the month before and above pre-covid averages. _{Labor Dept., 6/30/23}

3.6% = Unemployment rate

That’s down from 3.7% the month before and still near the lowest rate in 50+ years. _{Labor Dept., 6/30/23}

9.8M = Available jobs

That’s down from 10.3M the month before and well above pre-covid averages of ~7M. _{Labor Dept., 5/31/23}

Who’s hiring: Education and government organizations

Who’s firing: Healthcare and finance

👜 For your wallet

3.0% = 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, 6/30/23}

4.7% = Groceries cost increase (1-Year inflation)

Groceries are about the same price they were a month ago. _{Bureau of Labor Statistics, 6/30/23}

$3.56 = National Gas Price/Gallon

That’s down from $3.59 a month ago and down from $4.63 a year ago. _{AAA., 7/13/23}

💰For your savings

0.42% = Average interest banks pay on a savings account_{, FDIC, 6/20/23}

5.25% = Interest rate banks earn on their savings accounts_{, Federal Reserve, 6/14/23}

The Federal Reserve has raised baseline interest rates from 0% to 5.25% in the past year. Make sure your bank is paying you higher interest on your savings.

Find a high-yield savings account here.

💸For your investments

+2% = This past week’s change in the US Stock Market

+4% past month, +19% past year, and +62% over 5 years. _{S&P 500 Index, 7/13/23}

3.77% = The yield on the 10-Year US Treasury Bond

Yields are -7% this past week, -1% this past month, and +28% over the past year. _{US Government Bonds, 7/13/23}

+4% = This past week’s price change for Bitcoin

+22% in the past month and +56% in the past year. _{Coinbase, 7/13/23}

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

+14% in the past month and +85% in the past year. _{Coinbase, 7/13/23}

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 had 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 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.

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 ok. Low inflation (~1-2% per year) 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.

Policymakers have been raising interest rates to slow economic activity and cool spending so prices stop rising so quickly.

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. Business supply costs increasing by 5-10% per year like last year is not manageable.