🧭 The Weekly Scoop

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Welcome to our 164 new subscribers this past week! Take a second and share the scoop!

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

The economy and stock market are in a boring period right now. Neither is doing well enough to make anyone happy, but not bad enough to scare people. The market works on cycles of fear and greed, but right now, people are just hanging around.

This week was all about the inflation report, which largely turned out to be a non-event. Gas prices have been climbing, but besides that, nothing else was too scary.

All eyes are on American spending habits. Consumer spending powers two-thirds of the economy, so if the spending machine slows, the economy slows. Excess savings from the last few years have started to run out. Credit card balances are rising. Low-income families have lost government support and are missing more bill payments. Student loan payments are starting again for millions of Americans. Wages have stopped catching up to the rising cost of living. It’s not easy out there right now for most people, so it’s hard to see whether the next direction is up or down.

🐂 Reasons to be optimistic:

• Corporate executives feel pretty optimistic about the economy. CEOs provided relatively sanguine outlooks at several shareholder events this week for America’s biggest companies. Massive banks like JPMorgan Chase and Wells Fargo said consumers are still financially healthy. Huge conglomerates like Walmart, CVS, and Honeywell said sales and business activity have been better than expected.

• Layoff rates are still very low. The Labor Department reported initial unemployment claims inched higher for the first time in over a month last week to 220,000. That’s still in line with pre-pandemic levels. Unemployment is historically low, and there are still more than 1.5 available jobs for every unemployed person.

• Americans kept spending in August despite rising costs and shrinking savings. The Commerce Department reported retail sales rose by 0.6%, almost three times more than economists expected. Higher gas prices and spending at the pump raised the overall spending figure, but consumers also increased spending on cars, clothes, electronics, and events.

🐻 Reasons to be pessimistic:

• Inflation picked up in August. The Bureau of Labor Statistics’ Consumer Price Index rose 0.6% in July, the fastest monthly jump this year. [🤓] More than half of the increase in living expenses came from higher energy costs. Gasoline prices soared by over 10% in the month. Overall, the average cost of stuff we spend money on is still roughly 3.7% higher than it was a year ago. Besides energy, the jump in inflation was driven mainly by rent and shelter costs, which might be overstated. Government home pricing statistics are always a little stale and funky. More real-time indicators have shown home prices rising slowly or decreasing in many areas.

• Salaries aren’t keeping up with rising living costs. The Labor Department reported real average hourly earnings decreased by 0.5% in August when adjusting for inflation. Wages had been making a comeback for a few months, but they have a long way to go.

• Child poverty is getting much worse. The Census Bureau reported the percentage of kids under age 18 living in poverty rose from 5.2% in 2021 to 12.4% in 2022. One of the most significant contributors was Congress’ decision to discontinue a pandemic-era increase of the family tax credit per child from $2,000 to $3,600. The number of children living in poverty more than doubled from 3.8 million in 2021 to 9 million last year.

• Oil prices keep climbing. Both Brent and West Texas Intermediate benchmarks rose to their highest level since November. Major oil nations like Saudi Arabia and Russia have reduced their output while expecting oil consumption to stay strong. OPEC reported better demand worldwide as global economies operate better than expected, needing more fuel. [🤓] Higher gas prices could fuel inflation and strain living costs.

• Businesses are still battling inflation, but rising fuel costs is the biggest issue. The Labor Department reported a 0.7% surge in the producer price index in August, the most significant monthly jump in over a year. [🤓] A 20% surge in gas prices accounted for 60% of the higher expenses, but transportation and machinery costs also ate into businesses’ profits.

• Avocado prices could surge again soon. Avocado supplier Mission Produce today forecasted higher costs after months of declining prices. This could strain restaurants and guacamole lovers.

• Americans swiped their credit cards more than usual this summer. The Federal Reserve reported consumer debt rose by $10B in July, driven mainly by credit card purchases. Higher living costs have eaten away at families’ excess savings. Overall, credit levels aren’t rising much faster than in a normal economy, and missed bill payments haven’t yet grown to a concerning level.

• Households aren’t as optimistic about their financial future. The New York Fed’s survey of consumer expectations showed people are growing more concerned than they have been in years about layoffs and not being able to find a job. Americans have less hope for higher wages and expect to cut back spending.

• Consumers don’t anticipate inflation returning to the way it was anytime soon. The Fed’s survey indicated consumers expect living costs to rise by 3.6% over the next year and increase by 3% annually for the next five years. That’s lower than the dramatic price tag spikes of the past year but far from the 1-2% annual inflation before the pandemic. Expectations are important because they can be self-fulfilling, as consumers spend more and businesses raise prices in anticipation of higher costs.

The labor movement rises! This week, strikes and threats of strikes continued across industries, with hundreds of thousands of workers demanding better pay and working conditions.

One big change this week: companies are starting to push back. Chevron gave up on negotiations with its liquified natural gas (LNG) workers in Australia to pursue a rare legal resolution. The energy giant isn’t willing to meet the salary demands and feels comfortable risking disruptions that take 5% of the global LNG supply offline. Automakers are heading into strikes, unwilling to meet lofty wage expectations, offering “insulting” proposals. These workers may not have the same sway as airline pilots or UPS delivery workers.

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

• Chevron gives up negotiations and tries legal action to stop strikes

• General Motors insults union with weak offer, faces looming strike

• UPS driver pay package doesn’t cost as much as expected

• Chevron worker strike gets worse

• Ford takes union negotiations down to the wire

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

🏡 For your home

7.3% = Average 30-year mortgage rate

That’s up from 7.2% a month ago and up from 6.0% a year ago. _{Mortgage Bankers Association, 9/8/23}

$406,700 = Median existing home sales price

That’s down from $410K a month ago and up from $399K a year ago. _{National Association of Realtors, 7/31/23}

💼 For your work

220,000 = Layoffs Last Week (Initial jobless claims)

That’s up from 217,000 the week before and in line with pre-covid averages. _{Labor Dept., 9/8/23}

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}

$3.86 = National Average Gas Price/Gallon

That’s up from $3.85 a month ago and up from $3.70 a year ago. _{AAA., 9/14/23}

💰For your savings

0.43% = Average interest banks pay on a savings account_{, FDIC, 8/21/23}

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

+1% past month, +14% past year, and +56% over 5 years. _{S&P 500 Index, 9/14/23}

4.29% = The yield on the 10-Year US Treasury Bond

Yields are +1% this past week, +2% this past month, and +26% over the past year. _{US Government Bonds, 9/14/23}

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

-10% in the past month and +32% in the past year. _{Coinbase, 9/14/23}

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

-12% in the past month and -1% in the past year. _{Coinbase, 9/14/23}

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 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 to 3.2% in July," 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 0.18% from May to June and 0.17% from June to July, inflation actually declined, even if the July-22 to July-23 change is slightly higher than the June-22 to June-23 change. The 0.6% rise in August means that inflation accelerated. 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 ok. 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).