🧭 The Weekly Scoop

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

This week, investors ran around in circles without much new data to change the narrative. The economy is doing perfectly fine, but cracks are widening for the financial health of most Americans. There are plenty of looming risks, including the potential government shutdown due to congressional disagreement on spending plans, reduced consumer spending, dwindling savings for most Americans since the pandemic, increasing credit card bill defaults, declining consumer confidence, and a sluggish real estate market due to high mortgage rates and home prices.

For most of us, the light at the end of the tunnel would be to have policymakers start reducing interest rates, making borrowing less expensive and encouraging companies to start spending more. For policymakers to feel comfortable lifting some of their economic restrictions, inflation has to keep coming down, and hiring has to slow more. Rising oil and food prices are putting that at risk, and policymakers would likely need to see at least a few more months of down-trending inflation to feel comfortable lifting restrictions.

For the market, though, relief could come sooner. The market operates in anticipation of the economy, so a rally could come as soon as policymakers hint that they intend to ease off their policies restricting borrowing and slowing business activity.

These next few months could be a challenge. Make sure you’re stashing whatever savings you can.

🐂 Reasons to be optimistic:

• Layoff rates are still very low. The Labor Department reported initial unemployment claims rose slightly last week to 204,000 but remained lower than economists expected. Unemployment is historically low, and there are still more than 1.5 available jobs for every unemployed person.

• Hollywood writers have reached a deal to end a nearly five-month strike. The Writers Guild of America and the Alliance of Motion Picture and Television Producers have reached a preliminary labor agreement, potentially ending the ongoing writers' strike. The strike began in May 2023 and sought protections against using artificial intelligence and increased compensation for streamed content. Hollywood actors still haven’t reached a deal, and hundreds of thousands of workers across several other industries are still picketing for better conditions.

🐻 Reasons to be pessimistic:

• The government might shut down because Congress can’t agree on a spending plan. If they don’t figure it out by September 30th, the government will have to limit safety-net programs and childcare support, delay paychecks for hundreds of thousands of federal workers, furlough tens of thousands of workers, and interrupt disaster relief funding, among other things. Federal employees will get paid back for any time they are furloughed, but federal contractors will not. The last shutdown in 2018 lasted over a month. Depending on the shutdown length, it may not impact the overall economy, but many individuals will feel the strain. Look out for our Explained on Sunday. [🤓]

• Americans aren’t spending as much as economists thought, raising concerns about the economy's health. In the Commerce Department’s updated estimate of US economic growth in the second quarter, the overall growth measure stayed the same, but consumer spending growth was cut in half. Higher-than-expected business investment in new factories made up for it overall, but investors are worried because consumer spending is the most important, powering two-thirds of the economy. Overall, the US economy was still strong, with 2.1% GDP growth between April and June. [🤓]

• Most people have less savings than before the pandemic. A recent Federal Reserve study revealed that only the top 20% of the wealthiest Americans have more savings today than before the pandemic. The unique pandemic combination of forced lockdowns and government stimulus boosted most people’s extra cash savings. The poorest 40% of Americans now have 8% less cash than in March 2020. The middle 40-80% of income earners now only have about what they did three years ago or a little less. This trend could lead to a further economic downturn as households run low on spare funds.

• Americans are falling behind on their credit card bills quickly. Goldman Sachs reported credit card company losses are growing at the fastest pace since the 2008 financial crisis, which is strange given how low unemployment is right now. Current losses stand at 3.63% and may rise to 4.93% by 2024. The Central Bank last month said late payments have been very low but started growing more frequent this year, surpassing pre-pandemic levels last quarter. Rising living costs have been eating away at Americans’ savings, forcing many to turn to credit cards.

• The optimism of early summer keeps fading. The Conference Board's Consumer Confidence Index fell in September to the lowest level in four months. Americans are concerned about rising prices for groceries and gasoline and higher interest rates, making borrowing more expensive. Consumer spending powers two-thirds of the economy, so it’s essential to monitor sentiment.

• Fewer people are buying homes with mortgage rates near twenty-year highs. The Commerce Department reported sales of new homes fell in August to a five-month low. Sales of existing homes, which comprise a more significant portion of the market, sank to the lowest level since January. Expensive mortgage rates and high prices have made homes highly unaffordable, deterring buyers and stalling the real estate market.

• Even with fewer buyers, the housing shortage has kept home prices high. Expensive mortgages have also deterred sellers who want to hang on to the cheaper rate on their existing property, shrinking the available home supply. Home prices in the United States reached a record high in July, with a national measure of prices rising for the sixth consecutive month. According to data from S&P CoreLogic Case-Shiller, prices rose 0.6% from June to July and are up 1% over the last twelve months. The number of homes available for resale in August was down 7.9% from the previous year.

Companies are getting creative with sustainability solutions. It’s awesome to see massive corporations like Microsoft fronting the cash for innovative ways to reduce the climate-warming pollution from the air. The economic giants need to fund this transition and set ambitious sustainability targets like Apple. For those still doubtful about the economy’s ability to shed its fossil fuel dependence, plastic chemical companies have found new ways to replace necessary chemicals for nylons and other plastics with renewable resources. With the proper alignment of interest and resources, we can build the solutions we need!

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

• Microsoft invests $200M in rocks that capture carbon

• Colgate Palmolive makes big progress with renewable energy

• Apple targets all carbon-neutral products by 2030

• Starbucks develops more climate-resistant coffee trees

• Lyondell Basell launches more sustainable plastic alternatives

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

🏡 For your home

7.4% = Average 30-year mortgage rate

That’s up from 7.3% a month ago and up from 6.5% a year ago. _{Mortgage Bankers Association, 9/22/23}

$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

204,000 = Layoffs Last Week (Initial jobless claims)

That’s up from 201,000 the week before and in line with pre-covid averages. _{Labor Dept., 9/22/23}

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}

$3.84 = National Average Gas Price/Gallon

That’s up from $3.82 a month ago and up from $3.77 a year ago. _{AAA., 9/28/23}

💰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

-1% = This past week’s change in the US Stock Market

-3% past month, +18% past year, and +48% over 5 years. _{S&P 500 Index, 9/28/23}

4.58% = The yield on the 10-Year US Treasury Bond

Yields are +3% this past week, +11% this past month, and +22% over the past year. _{US Government Bonds, 9/28/23}

+2% = This past week’s price change for Bitcoin

+4% in the past month and +39% in the past year. _{Coinbase, 9/28/23}

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

-1% in the past month and +23% in the past year. _{Coinbase, 9/28/23}

A US government shutdown occurs when Congress can't agree on a budget for the upcoming fiscal year. It's a political standoff, often due to disagreements on where money should be spent, causing disruptions until a compromise is reached. When this happens, many federal agencies and services stop operating due to lack of funding. Essential services, like the military and air traffic control, keep running, but others, like national parks, might close. Government support services likely stay operating but may experience delays or disruptions. The longest shutdown was for 34 days in 2018.

When the US government shuts down, federal employees are placed on unpaid leave (furloughed), but they receive back pay for the time they were furloughed once the government reopens. Federal contractors, though, do not automatically receive pay. Their pay depends on their contracts' terms, and they may not recoup lost wages even after the government reopens.

Gross Domestic Product (GDP) is how we track how much stuff the economy is producing. The actual number (~$27 trillion) doesn't matter as much as the direction and magnitude. We track the growth rate of real GDP (inflation-adjusted) to know whether the economy is expanding or contracting from the previous quarter.

The reporting style can be a bit confusing. The main number you hear will be an annualized growth rate (+2.1%) of the quarter, representing how much the GDP would increase/decrease if the economy hypothetically grew at that rate for an entire year. It's different from how much our production increased/decreased quarter-to-quarter (+0.5%) and not representative of the growth/decline over the past year (+2.5%). Annualizing the past quarter’s change makes the backward-looking number a little more forward-looking.