Tag: Prices

Ohio’s Intel project triggers housing fears in tight market

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COLUMBUS, Ohio — Intel’s announcement earlier this year of a $20 billion manufacturing operation bringing thousands of jobs to rural Ohio was greeted as an economic boon.

But behind that enthusiasm lurked a pressing question.

“Where are we putting everybody?” asked Melissa Humbert-Washington, vice president of programs and services at Homes for Families, which helps low-wage workers find housing in a region already suffering a major shortage.

Intel says its initial two computer chip factories will employ 3,000 people when the operation is up and running in 2025. The project is also expected to employ 7,000 construction workers. And none of that includes the hundreds of additional jobs as Intel suppliers move in, along with the expected boom in the service sector.

Such housing challenges are playing out across the country as companies increasingly come under fire for failing to consider the shelter needs of their new employees or the impact big developments will have on already tight housing markets.

Experts agree that years of underbuilding dating to the Great Recession of 2008 has caused widespread housing shortages. Nationally, the country is short about 1 million homes, according to Rob Dietz, senior economist at the National Association of Home Builders. The National Apartment Association estimates a rental shortage of about 600,000 units.

“We have underbuilt housing by millions of homes over the past 15 years,” said Dennis Shea, executive director of the J. Ronald Terwilliger Center for Housing Policy. “So when a big company comes into a community that is supply constrained, the demand that they’re going to inject … is going to affect home prices and rental prices because there’s more demand than supply.”

For a big company’s impact on housing, look no farther than Intel’s own operations in Chandler, Arizona, which grew from a small agricultural city of about 30,000 in 1980 when the company built its first factory to a high-tech metropolis of 220,000 today. That was accompanied by tremendous housing growth, and today Chandler is running out of developable land, with nearly 95% of the area built out with residential, office, industrial and retail projects, according to the Greater Phoenix Economic Council.

Housing is also more expensive in Chandler, with a median home sale price of $525,000 compared to $455,000 in greater Phoenix, and median rents of $2,027 compared to $1,950 in Phoenix.

The challenge for areas like rural Ohio is that they don’t have local employees to build or staff a large project, said Mark Stapp, director of the Center for Real Estate Theory and Practice at Arizona State University. There’s neither the housing nor the infrastructure to accommodate the thousands of new arrivals, increasing housing prices and possibly forcing existing residents out.

“It’s economic development. It’s going to employ people. But you are probably going to have to bring a lot of people into the area,” he said. And “those jobs require housing.”

“If you don’t recognize that and don’t properly plan infrastructure, land use policies and manage that growth, it can be a big problem. The great opportunity turns into a big problem.”

In central Ohio, the Intel site is rising on hundreds of acres of rural land once occupied by farm fields and modest homes where large business parks have also sprung up near major thoroughfares. The region has averaged about 8,200 building permits per year for both single-family and multi-unit buildings, even as job and population growth estimates predating the Intel project called for more than twice that, according to the Building Industry Association of Central Ohio.

“We’re not building enough of anything,” said the group’s executive director Jon Melchi. Central Ohio, with about 2.4 million residents today, will grow to at least 3 million by 2050, the group said.

The central Ohio shortage includes the “missing middle” of workforce housing, or homes up to $250,000, said Tre’ Giller, CEO and president of Metro Development, one of Ohio’s largest apartment developers. A recent Zillow search showed only about 570 listings for homes $250,000 or less in the area.

The housing pressure is especially intense for low-wage workers. Central Ohio already has about 71,000 households considered “severely rent burdened” — families spending more than half their income on housing, said the Coalition on Homelessness and Housing in Ohio. The region has only 34 affordable units available for every 100 low-rent households, it said.

The problem is even more severe in Licking County, home to the future Intel plants, where more than one in five renters are considered severely rent burdened.

Affordable housing is crucial for the low-wage workers who keep the economy running, from pre-school teachers to medical assistants, said COHIO executive director Amy Riegel. But housing also has to be viewed on a spectrum: Without enough higher-end properties to purchase, buyers will snap up rentals, which then shuts out workers of limited means.

“Housing is definitely an ecosystem,” Riegel said. “If you add housing at one end, and don’t take care of the other end, it has an impact and a ripple effect through the whole system.”

On the Nov. 8 ballot, Columbus voters approved a $200 million bond issue aimed at increasing the city’s affordable housing stock for homeowners earning less than $50,000 annually. “We simply do not have enough places for people to live,” Mayor Andrew Ginther said in announcing the issue in July.

Janna Sharrett is grateful for her apartment in an affordable housing complex in suburban Columbus as the region braces for Intel’s arrival and its real estate impact. The 60-year-old customer service rep works from home and earns just $14.94 an hour. Her rent on the one-bedroom apartment she shares with her dog, Bella, and cat, Daisy, is $695.

The $6.5 million, 28-unit building where Sharrett lives was developed by Homeport, a Columbus-based nonprofit that works to expand affordable housing. Sharrett moved in two years ago seeking relief from a $1,000 rent payment, and today isn’t sure what she’d do without it.

She worries about the needs of people like herself as the region grows through projects such as Intel.

“Rent is outrageous. Prices of homes are outrageous. And my income is not outrageous,” Sharrett said.

Across the country, a growing number of companies are responding to housing concerns by rolling out ambitious plans for thousands of units of new housing — though efforts fall far short of actual needs.

In 2021, Amazon launched its $2 billion Housing Equity Fund to create over 8,000 affordable homes across three regions where it operates: the Puget Sound in Washington state; Arlington, Virginia, and Nashville, Tennessee.

In 2019, Apple said it would commit $2.5 billion toward easing California’s housing crisis, one of a number of initiatives by high tech companies. This month Walt Disney World picked a developer to construct affordable housing on 80 acres of its land in Orange County, Florida.

Intel, too, looks forward to partnering with Ohio community leaders to prepare for the increased housing demand over the next few years, said Intel spokesperson Linda Qian, without providing details.

Experts say it’s in Intel’s best interest to contribute toward alleviating the region’s housing shortage. Employers in greater Columbus already blame high worker turnover and reduced productivity on long commute times, according to a report by the Affordable Housing Alliance of Central Ohio.

“Without the housing product it can easily stifle the workforce needs of Intel and others,” said Jamie Green, a Columbus-based planning consultant.

As the Intel project unfolds, it highlights the challenges ahead, said Leah Evans, president and CEO of Homeport, which developed Sharrett’s affordable apartment complex.

“This just brought to light that for every one job you create, you’ve got a commute and you’ve got a housing unit” need, Evans said. “You have to be thinking about all those things.”

———

Michael Casey in Boston contributed to this report.

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November 19, 2022
Ohio’s Intel project triggers housing fears in tight market

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COLUMBUS, Ohio — Intel’s announcement earlier this year of a $20 billion manufacturing operation bringing thousands of jobs to rural Ohio was greeted as an economic boon.

But behind that enthusiasm lurked a pressing question.

“Where are we putting everybody?” asked Melissa Humbert-Washington, vice president of programs and services at Homes for Families, which helps low-wage workers find housing in a region already suffering a major shortage.

Intel says its initial two computer chip factories will employ 3,000 people when the operation is up and running in 2025. The project is also expected to employ 7,000 construction workers. And none of that includes the hundreds of additional jobs as Intel suppliers move in, along with the expected boom in the service sector.

Such housing challenges are playing out across the country as companies increasingly come under fire for failing to consider the shelter needs of their new employees or the impact big developments will have on already tight housing markets.

Experts agree that years of underbuilding dating to the Great Recession of 2008 has caused widespread housing shortages. Nationally, the country is short about 1 million homes, according to Rob Dietz, senior economist at the National Association of Home Builders. The National Apartment Association estimates a rental shortage of about 600,000 units.

“We have underbuilt housing by millions of homes over the past 15 years,” said Dennis Shea, executive director of the J. Ronald Terwilliger Center for Housing Policy. “So when a big company comes into a community that is supply constrained, the demand that they’re going to inject … is going to affect home prices and rental prices because there’s more demand than supply.”

For a big company’s impact on housing, look no farther than Intel’s own operations in Chandler, Arizona, which grew from a small agricultural city of about 30,000 in 1980 when the company built its first factory to a high-tech metropolis of 220,000 today. That was accompanied by tremendous housing growth, and today Chandler is running out of developable land, with nearly 95% of the area built out with residential, office, industrial and retail projects, according to the Greater Phoenix Economic Council.

Housing is also more expensive in Chandler, with a median home sale price of $525,000 compared to $455,000 in greater Phoenix, and median rents of $2,027 compared to $1,950 in Phoenix.

The challenge for areas like rural Ohio is that they don’t have local employees to build or staff a large project, said Mark Stapp, director of the Center for Real Estate Theory and Practice at Arizona State University. There’s neither the housing nor the infrastructure to accommodate the thousands of new arrivals, increasing housing prices and possibly forcing existing residents out.

“It’s economic development. It’s going to employ people. But you are probably going to have to bring a lot of people into the area,” he said. And “those jobs require housing.”

“If you don’t recognize that and don’t properly plan infrastructure, land use policies and manage that growth, it can be a big problem. The great opportunity turns into a big problem.”

In central Ohio, the Intel site is rising on hundreds of acres of rural land once occupied by farm fields and modest homes where large business parks have also sprung up near major thoroughfares. The region has averaged about 8,200 building permits per year for both single-family and multi-unit buildings, even as job and population growth estimates predating the Intel project called for more than twice that, according to the Building Industry Association of Central Ohio.

“We’re not building enough of anything,” said the group’s executive director Jon Melchi. Central Ohio, with about 2.4 million residents today, will grow to at least 3 million by 2050, the group said.

The central Ohio shortage includes the “missing middle” of workforce housing, or homes up to $250,000, said Tre’ Giller, CEO and president of Metro Development, one of Ohio’s largest apartment developers. A recent Zillow search showed only about 570 listings for homes $250,000 or less in the area.

The housing pressure is especially intense for low-wage workers. Central Ohio already has about 71,000 households considered “severely rent burdened” — families spending more than half their income on housing, said the Coalition on Homelessness and Housing in Ohio. The region has only 34 affordable units available for every 100 low-rent households, it said.

The problem is even more severe in Licking County, home to the future Intel plants, where more than one in five renters are considered severely rent burdened.

Affordable housing is crucial for the low-wage workers who keep the economy running, from pre-school teachers to medical assistants, said COHIO executive director Amy Riegel. But housing also has to be viewed on a spectrum: Without enough higher-end properties to purchase, buyers will snap up rentals, which then shuts out workers of limited means.

“Housing is definitely an ecosystem,” Riegel said. “If you add housing at one end, and don’t take care of the other end, it has an impact and a ripple effect through the whole system.”

On the Nov. 8 ballot, Columbus voters approved a $200 million bond issue aimed at increasing the city’s affordable housing stock for homeowners earning less than $50,000 annually. “We simply do not have enough places for people to live,” Mayor Andrew Ginther said in announcing the issue in July.

Janna Sharrett is grateful for her apartment in an affordable housing complex in suburban Columbus as the region braces for Intel’s arrival and its real estate impact. The 60-year-old customer service rep works from home and earns just $14.94 an hour. Her rent on the one-bedroom apartment she shares with her dog, Bella, and cat, Daisy, is $695.

The $6.5 million, 28-unit building where Sharrett lives was developed by Homeport, a Columbus-based nonprofit that works to expand affordable housing. Sharrett moved in two years ago seeking relief from a $1,000 rent payment, and today isn’t sure what she’d do without it.

She worries about the needs of people like herself as the region grows through projects such as Intel.

“Rent is outrageous. Prices of homes are outrageous. And my income is not outrageous,” Sharrett said.

Across the country, a growing number of companies are responding to housing concerns by rolling out ambitious plans for thousands of units of new housing — though efforts fall far short of actual needs.

In 2021, Amazon launched its $2 billion Housing Equity Fund to create over 8,000 affordable homes across three regions where it operates: the Puget Sound in Washington state; Arlington, Virginia, and Nashville, Tennessee.

In 2019, Apple said it would commit $2.5 billion toward easing California’s housing crisis, one of a number of initiatives by high tech companies. This month Walt Disney World picked a developer to construct affordable housing on 80 acres of its land in Orange County, Florida.

Intel, too, looks forward to partnering with Ohio community leaders to prepare for the increased housing demand over the next few years, said Intel spokesperson Linda Qian, without providing details.

Experts say it’s in Intel’s best interest to contribute toward alleviating the region’s housing shortage. Employers in greater Columbus already blame high worker turnover and reduced productivity on long commute times, according to a report by the Affordable Housing Alliance of Central Ohio.

“Without the housing product it can easily stifle the workforce needs of Intel and others,” said Jamie Green, a Columbus-based planning consultant.

As the Intel project unfolds, it highlights the challenges ahead, said Leah Evans, president and CEO of Homeport, which developed Sharrett’s affordable apartment complex.

“This just brought to light that for every one job you create, you’ve got a commute and you’ve got a housing unit” need, Evans said. “You have to be thinking about all those things.”

———

Michael Casey in Boston contributed to this report.

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November 19, 2022
US stocks waver, remain on track to end week with losses

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NEW YORK — Stocks wavered in afternoon trading on Wall Street Friday and are heading for losses for the week after several days of bumpy trading.

The S&P 500 fell 0.2% as of 12:26 p.m. Eastern. The benchmark index had traded as high as 0.8% earlier in the day. The Dow Jones Industrial Average rose 42 points, or 0.1%, to 33,593 and the Nasdaq fell 0.6%.

Small company stocks did better than the the rest of the market. The Russell 2000 rose 0.2%.

Major indexes are all on track for weekly losses.

Health care and financial companies were among the biggest gainers. UnitedHealth Group rose 2.9% and Charles Schwab rose 2%.

Energy stocks fell along with sliding energy prices. U.S. crude oil fell 2.8% and Exxon Mobil fell 1.4%.

Retailers made solid gains after several companies reported strong financial results and gave investors encouraging financial forecasts. Discount retailer Ross Stores surged 10.3% and clothing retailer Gap rose 7.8% after beating analysts’ expectations. Foot Locker rose 2.9% after raising its profit and revenue forecast for the year.

The solid earnings from retailers cap off a shaky week for Wall Street as investors try to get a better sense of inflation’s path and its impact on consumers and businesses. Investors have been particularly anxious about the Federal Reserve’s fight against inflation and have been looking for signs that might allow the central bank to shift to less aggressive interest rate increases. That anxiety was heightened on Thursday after a Fed official suggested U.S. interest rates might have to be raised higher than expected to cool inflation.

“It’s all been the same story for a year,” said Keith Buchanan, portfolio manager at Globalt Investments. “It’s about what inflation is doing, how the Fed responds, and from there how does the consumer respond.”

The central bank has already warned that the main lending rate may have to rise to a more painful level than anybody had anticipated, possibly between 5% and 7%. The Fed’s benchmark rate currently stands at 3.75% to 4%, up from close to zero in March.

The Fed is trying to tame the hottest inflation in decades by making borrowing more difficult and curtailing spending. Several big measures of inflation have shown that prices are easing a bit, but other economic indicators show that consumers remain resilient, as does the jobs market.

The Fed’s strategy risks sending the economy into a recession if it hits the brakes too hard on economic growth. The latest mix of inflation and economic data has Wall Street trying to gauge whether the Fed needs to keep pushing along with interest rate increases and whether it can achieve its goal without severely crimping consumer spending or employment.

The U.S. reported this week that retail sales rose 1.3% in October as Americans increase their spending at stores, restaurants, and auto dealers, a sign of consumer resilience as the holiday shopping season begins. That’s not to say consumer behavior hasn’t been affected by inflation. Major retailers say Americans are holding out for sales, refusing to pay full price, with the cost of gasoline, rent, food and almost everything else much higher than it was last year.

European markets were higher and Asian markets closed mixed overnight.

Bond yields rose. The yield on the 10-year Treasury, which influences mortgage rates, rose to 3.82% from 3.77%.

———

Joe McDonald and Matt Ott contributed to this report.

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November 18, 2022
Black Friday surprise: Jeff Bezos tells people NOT to buy cars, refrigerators and other big-ticket items. Critics call him out.

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Billionaire Jeff Bezos, who founded the e-retail behemoth Amazon, has some spending tips as Americans gear up for a holiday shopping season — amid four-decade high inflation and recession worries.

Here’s what he said:

“‘If you’re an individual and you’re thinking about buying a large-screen TV, maybe slow that down, keep that cash, see what happens. Same thing with a refrigerator, a new car, whatever. Just take some risk off the table.’”

Bezos made the comments in a CNN
WBD,
+0.46%
interview that aired this week, the same interview where he pledged to give away most of his fortune in his lifetime.

Why did Bezos offer the tip for consumers and small business to go easy on big-ticket items? He gave one big reason.

“If we’re not in a recession right now, we’re likely to be in one very soon,” he said in the interview, picking up on his cautionary tweet last month that “the probabilities in this economy tell you to batten down the hatches.”

Bezos is currently executive chair at Amazon
AMZN,
-2.34%,
transitioning to the role last year as Andy Jassy took the reins as CEO.

Later this week, Amazon confirmed it was laying off some of its staff in its device and services business — joining a growing list of tech companies, including Facebook parent Meta
META,
-1.57%
— that is laying people off. Amazon’s job cuts could number around 10,000, according to the Wall Street Journal.

“Critics have taken aim at these words of thrift coming from a man — now worth approximately $120 billion — who built Amazon into the online shopping bonanza.”

To be sure, Bezos is not alone is his worries about a potential recession as the Federal Reserve and other central banks fight higher costs by hiking interest rates.

But his advice prompted some guffaws on social media. In a nutshell, critics say these are words of thrift coming from a man — now worth approximately $120 billion — who built Amazon into the online shopping bonanza that lets consumers seamlessly spend money.

As Joshua Becker, a proponent of minimalism wrote on Twitter: “I didn’t hear him mention refraining from Amazon’s Prime Day deals or Black Friday offers, but I recommend adding those items to your list as well.”

Regardless of how anyone feels about hearing spending advice, particularly from one of the world’s richest people, there are some things to consider as events like Black Friday and Cyber Monday approach.

For one thing, maybe there are discretionary expenses where people can cut back. Many Americans are still spending briskly, as Walmart
WMT,
-0.34%
third-quarter earnings and October’s retail-sales numbers recently affirmed. Holiday-spending projections paint the same picture.

Americans will spend between $942.6 billion and $960.4 billion on holiday-season sales this year, according to projections from the National Retail Federation. Last year’s holiday sales totaled $889.3 billion, the trade association said.

“During the third quarter, Americans’ credit-card balances climbed to $930 billion, the biggest annual increase in more than 20 years, according to the National Retail Federation.”

But Americans are planning for the holidays while credit-card balances are increasing — likely because credit cards are helping them keep up with rising costs.

During the third quarter, Americans’ credit-card balances climbed to $930 billion, the biggest annual increase in more than 20 years, according to Federal Reserve Bank of New York data.

While balances grow, so do credit-card interest rates. The annual percentage rate (APR) on new credit-card offers averaged 19.14% in mid-November, according to Bankrate.com. That beats the old record on APRs for new cards, set at 19% three decades ago.

The holiday shopping season is typically when Americans accumulate credit-card debt, pay the debts in the early part of the coming year and repeat the holiday-season debt the following year.

This year, the stakes could be higher if high credit-card bills arrive and a recession-induced job loss follows.

“It’s not the time to overspend and have a problem with paying your bills later,” Michele Raneri, vice president of financial services research and consulting at TransUnion
TRU,
-4.94%,
one of the country’s three major credit bureaus, previously told MarketWatch. “We know the economy is sending mixed messages.”

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November 17, 2022
Smaller food cos. get set for a high-priced holiday season

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NEW YORK (AP) — Holiday celebrants in Hilo, Hawaii, might notice something different about the traditional Yule Log cake from the Short ’N Sweet bakery this year.

Maria Short typically makes her popular $35 bûche de Noël with two logs combined to look like a branch. This year, thanks to soaring prices for eggs and butter and other items, she’s downsizing to one straight Yule log.

“It’s the same price, but smaller,” she said. “That cuts down on size and labor.”

Higher prices are hitting everyone this holiday, but food vendors are seeing some of the biggest increases. Small businesses that count on food-centric holidays like Thanksgiving and Christmas are bracing for a difficult season.

At the wholesale level, egg prices are more than triple what they were a year ago, milk prices are up 34% and butter is up 70%, according to data from the U.S. Department of Agriculture. Businesses are also paying more for everything from packages to labor.

Many owners are raising prices to offset the higher costs. But raising prices too much risks driving away the crucial holiday shopper. So, businesses are adapting: adjusting the way they make products, changing gift basket components and adding free gifts instead of giving discounts, among other steps.

Maria Short says that even for Hawaii, where the cost of living is among the highest of any U.S. state, the price increases are “drastic.”

For example, she says, the Short N Sweet Bakery is paying $123 for a case of eggs that cost $42 in October last year. A case of butter that was $91 in October ago; it’s $138 this year.

Among the ways Short is cutting costs, she’ll use a generic box decorated with stickers instead of using a customized box for her desserts. And she ordered a cookie printer rather than having bakers hand-pipe frosting, to save on labor costs.

Sarah Pounders, who co-owns Nashville-based Made in TN, a retailer of locally made food and gifts, says the local vendors who make the items she sells are facing higher prices. The cost of butter needed to make cookies is five times the price from a year ago and cardboard packaging is double.

Made in TN has raised some prices and is selling other items for less profit. Customers are already paying more for things like gas, clothing and cars, as well as services like eating out and travel, so they’re not as quick to spend as they might have been in prior years. They’re noticing the price increases, she said.

“If bread is up 50 cents you will still buy bread,” Pounders said. “But if it’s an impulse buy or luxury specialty item — if chocolate-covered cookies are up $1 — you might think twice.”

Price increases aren’t an option for her popular gift basket business. Corporations often have a $50 cap and events at hotels like weddings can have a $20 sweet spot. So, Pounders has made adjustments. In some cases, she has replaced a $20 bag of coffee, which is up $3, with less expensive hot chocolate. Or she puts one less chocolate bar in the basket.

She’s also buying more items that could sell throughout the year and less seasonal inventory like peppermint bark and hot chocolate on a stick.

“Every year is a guess, and the economy makes it even more volatile,” she said.

Eric Ludy, co-founder of Cheese Brothers, an online purveyor of Wisconsin cheese and gift baskets, faces a tricky task this holiday season as he tries to offset higher costs for packaging, labor — and cheese. Half of his business comes in the weeks between Black Friday and Christmas.

Cheese Brothers has nominally raised prices for their cheese – a block of cheddar will cost customers $7.50 instead of $7, for example. Ludy says he’ll also rely less on discounts this year and more on gifts and other giveaways.

A bit of a gamble that Ludy is taking is upping the spending limit for free shipping to $70 from $59.

“People buy enough to get free shipping, it’s a huge motivator,” he said. He hopes raising the shipping price could push the average order up to $70. But it could also stop people from clicking the “Buy” button.

“We might start to see people push back and not buy as much,” he said. “It’s a delicate balance.”

Americans eat an estimated 40 million turkeys during the holidays, according to industry group The National Turkey Federation. But turkey purveyors are facing a double whammy this Thanksgiving: higher prices plus an avian flu epidemic that is shaping up to be one of the worst in history.

Kevin Smith, owner of Beast and Cleaver, a butcher shop in Seattle, Washington, gets his turkeys from small, local farms. He says he’s paying $6 a pound for turkey this year, up from $3.80 to $4.20 last year. In addition, he only plans to sell 150 turkeys this year, down from 250 last year, due to shortages caused by the avian flu.

Still, Smith doesn’t plan to charge more for turkey than he did last year: $9 a pound. He says he has a “solid base of customers” willing to pay for more local, sustainable turkeys, but there’s a limit.

“We don’t want people to have to pay $12 a pound for turkey,” he said.

He’s raising the price of other items, like ground sausage and pates, to offset the higher costs of poultry. And while the rush of panic-buying during the pandemic has subsided, he’s still expecting a good holiday season.

“We’re still very busy,” he said. “It’s just a more stable busy.”

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November 17, 2022
Trimming the fat: inflation finally hitting profit margins

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NEW YORK (AP) — Corporate profits have withstood raging inflation over much of the last year, but those good times may be ending.

Profits stayed fat even as companies’ costs rose thanks to one simple trick: Businesses boosted the prices they charged customers by more than their own costs rose.

Now, though, more companies are seeing their costs rise faster than their revenues. In the parlance of finance executives, their margins are getting squeezed, and that’s acting as a drag on their profits.

To be sure, corporate profits are still near record highs. Companies in the S&P 500 are in the midst of reporting overall growth of roughly 2% for the summer from a year earlier. Many companies also say they still have the power to hold the line on prices for their products, if not raise them further. But some signs of stress are beginning to show, and analysts say even faster margin declines may be on the way given how fragile the economy is.

Consider LyondellBasell, an international chemical company. Its chief financial officer recently said the company saw margins get squeezed last quarter “across all segments due to rising costs and weaker global demand.”

Coffee giant Starbucks, meanwhile, was one of the many companies that successfully pushed through price increases over the last year with no drop-off in customer loyalty or transactions because of them. But when executives earlier this month discussed their latest results, interim CEO Howard Schultz said, “We’re certainly not going to try and raise prices during this time.”

Profit margins for S&P 500 companies during the summer look like they dipped to 11.9%, according to FactSet. That essentially means they kept $119 of every $1,000 in sales as profit. That’s down from $122 three months earlier and from $129 a year earlier, but still above the average of $113 over the last five years.

One of the biggest reasons for the fall in margins is the recent rise in pay that workers have won recently. Total compensation for workers in the private industry rose 5.2% in the summer from a year earlier. Once workers get such increases, companies find it difficult to take them away.

“The combination of sticky wage costs and slowing end market/consumer pricing has been evident in recent macro data and loudly signals margin pressure,” strategists at Morgan Stanley wrote in a recent report.

They’re more pessimistic about trends for profit margins than most of Wall Street, forecasting a drop of 1.5% percentage points in 2023. That’s why they see a fall of 11% for profits at S&P 500 companies next year.

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November 17, 2022
Fewer Americans file for jobless benefits last week

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The U.S. job market remains healthy as fewer Americans applied for unemployment benefits last week, despite the Federal Reserve’s rapid interest rate hikes this year intended to bring down inflation and tighten the labor market

WASHINGTON — The U.S. job market remains healthy as fewer Americans applied for unemployment benefits last week, despite the Federal Reserve’s rapid interest rate hikes this year intended to bring down inflation and tighten the labor market.

Applications for jobless claims for the week ending Nov. 12 fell by 4,000 to 222,000 from 226,000 the previous week, the Labor Department reported Thursday. The four-week moving average rose by 2,000 to 221,000.

The total number of Americans collecting unemployment aid rose by 13,000 to 1.51 million for the week ending Nov. 5. a seven-month high, but still not a troubling level.

Applications for jobless claims, which generally represent layoffs in the U.S., have remained historically low this year, deepening the challenges the Federal Reserve faces as it raises interest rates to try to bring inflation down from near a 40-year high.

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November 17, 2022
Oil Could Rise After Latest EU Sanctions on Russia. Why a Rally May Not Last.

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The European Union’s ban on seaborne imports of Russian oil, along with the Group of Seven’s plan to cap prices of oil from Russia early next month won’t guarantee that prices for the commodity will see a lasting rally, or that supplies will tighten further in the days ahead.

“In isolation, the sanctions on Russia should be bullish for prices,” says Matt Smith, lead oil analyst, Americas, at Kpler. However, they may have a limited effect, as Russian barrels get “rerouted and not taken off the market,” while a price cap still has so much uncertainty surrounding it that its impact may be “muted due to workarounds or may simply be ineffective.”

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November 17, 2022
Asia-Pacific leaders tackle trade, sustainability in Bangkok

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BANGKOK — The war in Ukraine, great power rivalry Asia, inflation and food and energy shortages are on the agenda as leaders prepare for the third back-to-back gathering this week, a Pacific-Rim summit taking place in a heavily guarded venue in Thailand’s capital.

Leaders from the 21-member Asia-Pacific Economic Cooperation forum will meet formally in closed-door sessions Friday and Saturday. For some, it will be at least the third such opportunity for face-to-face talks in the past two weeks, though the U.S. is represented in Bangkok by Vice President Kamala Harris, who is attending instead of President Joe Biden.

APEC’s official mission is to promote regional economic integration. Most of the business conducted happens on the summit’s sidelines in meetings such as a planned meeting between Chinese President Xi Jinping and Japanese Prime Minister Fumio Kishida.

The two Asian powers have a history of tense relations, a legacy of Japan’s World War II aggression compounded by territorial disputes and China’s growing military might. A Chinese Foreign Ministry spokesperson, Mao Ning, said the encounter would “carry great importance.”

Xi, Harris and French President Emmanuel Macron will also speak at a business conference held just ahead of the summit meetings that is mostly closed to media apart from outlets sponsoring the event.

The APEC meetings are being held in downtown Bangkok’s main convention center, which is cordoned off with some streets in the area completely closed to all traffic. Rows of riot police stood guard behind the barricades at a major intersection nearby, underscoring host Thailand’s determination to ensure the summit suffers no disruptions.

“The APEC meeting this year takes place amidst a dual jeopardy. We need not be reminded of the severe security conflicts that know not what victory looks like. Meanwhile, the world is staring at the hyper inflation married to recession, a broken supply chain and scarcity and climate calamities,” Don Pramudwinai, Thailand’s foreign minister said in opening a meeting of foreign ministers and commerce ministers who were working on draft statements due to be issued after the summit.

Apparently alluding to Russia and recent condemnation of its war on Ukraine, he also said there was a growing “cancel mentality” that makes “any compromise appear impossible.”

Before the summit, Thai officials said they were hoping to steer APEC toward long-term solutions in various areas, including climate change, economic disruptions and faltering recoveries from the pandemic.

“What we are going to do is to have all economies agree on a set of targets … climate change mitigation, sustainable trade and investment, environment resources conservation and, of course, waste management,” said Cherdchai Chaivaivid, director-general of Thailand’s Department of International Economic Affairs. “This is the first time that APEC is going to talk about this. This is the first time that we are going to open a new chapter in how trade, business, investment should be done.”

APEC’s official mission is to promote regional economic integration, which means setting guidelines for long-term development of a free trade area. Most of its work is technical and incremental, carried out by senior officials and ministers, covering areas such as trade, tourism, forestry, health, food, security, small and medium-size enterprises and women’s empowerment.

Leaders from the 21 economies on both sides of the Pacific Ocean often take the opportunity to conduct bilateral talks and discuss side deals. The Latin American contingent comes from Chile, Mexico and Peru. Other members are Australia, Brunei, Canada, China, Hong Kong, Indonesia, Japan, Malaysia, New Zealand, Papua New Guinea, the Philippines, Russia, Singapore, South Korea, Taiwan, Thailand, the United States and Vietnam.

Russian President Vladimir Putin and Biden are no-shows this year. Putin has been avoiding international forums where he would be showered with criticism over the invasion of Ukraine. Biden will be hosting his granddaughter’s wedding at the White House.

That leaves Chinese leader Xi as the star attendee in Bangkok, where he also is making an official visit to Thailand just after obtaining a rare third term as top leader at a once-in-five years Communist Party congress.

Biden is giving ground to China in the competition for friends and influence in Southeast Asia by skipping the APEC meetings. But U.S. officials say Washington has demonstrated its seriousness in relations with the region through frequent visits by Cabinet members including Secretary of Defense Lloyd J. Austin III and other key senior officials.

As host, Thailand invited three special guests to the meeting: the French president Macron; Crown Prince Mohammed bin Salman, the prime minister of Saudi Arabia, and Cambodian Prime Minister Hun Sen, who was to represent the Association of Southeast Asian Nations but will not attend after getting COVID-19.

For Thai Prime Minister Prayuth Chan-ocha, the most welcome visitor may well be the Saudi leader, who is making an official visit to help restore friendly relations with Thailand after decades of disruption due to a theft of Saudi royal jewelry and the unsolved murders of Saudi diplomats in Bangkok.

“This is a good opportunity, that Mohammed bin Salman is visiting Thailand and both countries will resume a good economic relationship after over 30 years,” the chairman of the Thai Chamber of Commerce, Sanan Angubolkul, told The Associated Press. “To have the French president join us also shows how important this region is.”

The war in Ukraine remains a likely thorn in APEC’s consensus-oriented efforts. None of the earlier APEC meetings this year issued statements due to disagreements over whether to mention the conflict.

Like Indonesia, which hosted the Group of 20 summit in Bali this week, and Cambodia, which hosted the ASEAN meetings, Thai officials have put the best possible face on the situation, contending that agreement on other points will allow APEC to move forward regardless.

Skeptics doubt the meeting will accomplish much.

“This APEC is only a photo opportunity for leaders. Its agenda has drawn much less attention than the ASEAN summit and G-20,” Virot Ali, a political scientist at Thailand’s Thammasat University, told The Associated Press.

“I don’t think we will see any progress from APEC. The current geopolitics, trade war, COVID-19, and Russia-Ukraine war are the issues that people are paying more attention to and feeling more impact from,” he said.

———

Associated Press journalists Grant Peck and Tassanee Vejpongsa contributed to this report.

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November 16, 2022
US stocks slip as Target stumbles, weighs on retailers

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NEW YORK — Stocks fell in afternoon trading on Wall Street Wednesday as investors reviewed a dismal financial report from Target and a broader update on the retail sector from the government.

The S&P 500 fell 0.5% as of 12:01 p.m. Eastern. The Dow Jones Industrial Average rose 56 points, or 0.2%, to 33,645 and the Nasdaq fell 1.2%.

Retailers weighed heavily on the market. Target slumped 11.8% after cutting its forecasts for the holiday season following a surprisingly big drop in its third-quarter profits. Auto parts retailer Advance Auto Parts fell 17.4% after reporting weak financial results.

Macy’s, which reports its financial results on Thursday, fell 8.2%.

Big technology companies also fell. Chipmaker Micron slipped 5.6% after announcing some production cuts because of weak demand. Nvidia fell 3.1%.

Wall Street has been closely watching the latest economic updates, including reports that consumer and wholesale prices continue to cool. Much of the market’s prior rally was due to hopes inflation is easing, which could portend less aggressive hikes for interest rates from the Federal Reserve.

The Fed has been raising interest rates in an effort to slow the economy and tame the hottest inflation in decades. Wall Street is worried that it could hit the brakes too hard on economic growth and bring on a recession.

The latest government report on retail sales for October shows that consumer spending remains strong, though it’s unclear whether that’s because of more purchases or higher prices.

Strong consumer spending is typically a good sign for the economy, but it could make the Fed’s strategy of cooling the economy more difficult. The central bank has already hiked its key overnight rate up to a range of 3.75% to 4% from virtually zero earlier this year. It has said it still plans to hike rates further and then to hold them at that high rate for a while in order to grind down inflation.

“The better-than-expected retail sales results don’t bolster the case that the Fed” can ease up on its campaign to slow the economy with high interest rates, said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management.

He said resilient consumer spending could improve the possibility that the Fed manages to pull off a so-called “soft landing” with its strategy. That would involve taming inflation without throwing the economy into a recession, or at least avoiding a damaging recession.

Bond yields were mixed. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.73% from 3.78% from late Tuesday. The yield on the two-year Treasury rose to 4.37% from 4.35% from late Tuesday.

Wall Street is also closely watching developments in Russia’s war against Ukraine. Tensions appear to have receded slightly after NATO member Poland and the head of the military alliance both said Wednesday there is “no indication” that a missile that came down in Polish farmland, killing two people, was an intentional attack. Air defenses in neighboring Ukraine likely launched the Soviet-era projectile to fend off a Russian assault that savaged its power grid, they said.

“There is nothing, absolutely nothing, to suggest that it was an intentional attack on Poland,” said Polish President Andrzej Duda.

Markets in Europe fell.

The conflict is hanging over the energy market. A worsening war in Ukraine could cause spikes in prices for oil, gas and other commodities that the region produces. U.S. crude oil prices rose 2.7%.

———

Yuri Kageyama and Matt Ott contributed to this report.

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November 16, 2022
US retail sales rose 1.3% last month, a sign of resilience

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WASHINGTON — Americans stepped up their spending at retailers, restaurants, and auto dealers last month, a sign of consumer resilience as the holiday shopping season begins amid painfully high inflation and rising interest rates.

The government said Wednesday that retail sales rose 1.3% in October from September, up from a flat reading in September from August. The increase was led by car sales and higher gas prices. Still, excluding autos and gas, retail spending rose 0.9% last month.

Strong auto sales may have been supercharged by the arrival of Hurricane Ian in late September, which destroyed up to 70,000 vehicles, according to economists at TD Securities.

Even adjusting for inflation, spending increased at a solid pace. Prices rose 0.4% in October from September. The government’s solid report contrasted with gloomy figures Wednesday from retail chain Target, which announced unexpectedly weak profits as its increasingly price-sensitive customers pulled back on spending.

Steady job growth, rising wages, and higher savings after many people cut back on travel and entertainment during the pandemic have enabled surprisingly steady spending by consumers, particularly those with higher incomes.

Economists pointed to two other factors that likely contributed to the gain: Amazon held another Prime Day promotion last month, and California distributed inflation relief checks of up to $1,050.

Yet there are ongoing signs that cracks are forming in consumers’ ability to keep up with the highest inflation in four decades. More households are relying on credit cards to pay bills, with nationwide credit card balances jumping 15% in the July-September quarter from a year ago, the largest year-over-year increase in two decades, according to a report Tuesday from the Federal Reserve Bank of New York.

“Consumers are likely turning to credit to support spending as wage growth lags inflation and high prices are eating away from the stock of savings,” said Jeffrey Roach, chief economist for LPL Financial.

And research last week from Bank of America found that consumers are increasingly seeking out cheaper options when it comes to groceries and dining out. Transactions by Bank of America customers, using credit and debit cards, show that they are now visiting cheaper fast food restaurants more often than full-service restaurants, after eating at both equally for about a year after the spring of 2021.

The Bank of America report also found that, adjusting for inflation, grocery spending per household has fallen sharply, to below pre-pandemic levels, even though visits to grocery stores haven’t fallen. That suggests many people are seeking out cheaper options when shopping for food.

Still, analysts said Wednesday’s government report on retail sales points to a healthier economy than previously expected. Morgan Stanley revised its forecast for growth in the October-December quarter to 1.7% at an annual rate, up from an earlier projection of 0.7%.

Strong consumer demand could perpetuate inflation, but other trends may work in the other direction. Auto sales jumped 1.3% last month, the retail sales report showed, but that gain, in addition to people replacing cars in Florida, partly reflects a clearing of supply chain problems that have made more auto parts and semiconductor chips available. Auto production has rebounded, leading to greater supply, which can push prices down.

Gas station sales jumped 4.1% last month, though that largely reflected higher prices. Online sales rose 1.2%, and restaurant and bar sales moved up 1.6%.

Walmart, the world’s largest retailer, reported strong sales growth Tuesday in its third quarter, as more shoppers, including higher-income ones, sought out its cheaper groceries.

The company said that consumers are trading down to private brands in baby items and baking goods, among other categories. It is also seeing wealthier customers. About three-quarters of Walmart’s market share gains in food came from customers with annual household incomes of $100,000 or more, the company said.

Inflation reached 7.7% in October from a year ago, down from a peak of 9.1% in June but still a level that hasn’t been seen in 40 years. There are some signs that prices are likely to keep declining as many supply chain snarls have unraveled, boosting stockpiles of goods at many stores. Some chains may soon have to resort to discounting to clear excess merchandise.

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November 16, 2022
U.K. inflation hit fresh four-decade high of 11.1% in October

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U.K. inflation accelerated in October, reaching a fresh four-decade high, as higher wholesale energy prices fed through households’ utility bills.

The U.K.’s Office for National Statistics said Wednesday that consumer prices were 11.1% higher in October than a year earlier, more than the 10.1% rise registered in September.

This is the highest rate of inflation since February 1982, and beats the 10.9% consensus forecast from economists in a poll by The Wall Street Journal.

The jump in inflation was mainly due to higher energy prices, which increased for most households even as the U.K. government implemented an energy price cap from Oct. 1. Electricity prices rose 65.7% on year, up from the 54% increase registered in September. Gas prices soared 128.9% compared to a year earlier, outstripping the 95.7% the prior month.

The core price index–which excludes volatile categories such as food and energy–increased 6.5% in October on year, unchanged from September.

The Bank of England expects inflation to remain around 11% in the fourth quarter, and to moderate slightly toward 10% in 2023’s first quarter.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

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November 15, 2022
UK property market at risk of major downturn as recession fears loom

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Economists are predicting that soaring interest rates and falling prices will mark the end of the U.K.’s 13-year housing market boom, potentially leading to a house price crash.

Matt Cardy | Getty Images News | Getty Images

LONDON — The U.K. property market may be verging on a major downturn, with some market watchers warning of a collapse in prices of up to 30% as data points to the biggest slump in demand since the Global Financial Crisis.

New homebuyer enquiries plunged in October to their lowest level since the 2008 financial crash, excluding the period during the first Covid-19 lockdown, the latest RICS housing surveyors report showed last week.

Meantime, the MSCI UK Quarterly Property Index, which tracks retail, office, industrial and residential property, slumped 4.3% in the three months to September, marking the sector’s worst performance since 2009.

The market slowdown marks a reprieve from a two-year, pandemic-induced home buying frenzy, with property transactions in September down 32% annually from a 2021 peak.

But as the era of cheap money fades, and the Bank of England doubles down on inflation-busting rate hikes to counter the chaotic mini-budget, economists say the downturn could be more acute than first thought.

Although a house price correction is widely expected … it appears to be unfolding faster than anticipated.

Kallum Pickering

senior economist, Berenberg

“Although a house price correction is widely expected as part of the ongoing recession, it appears to be unfolding faster than anticipated,” Kallum Pickering, senior economist at Berenberg, wrote of the U.K. market Thursday.

The investment bank now sees U.K. property prices declining by around 10% by the second quarter of 2023. But some lenders are less sanguine.

Nationwide, one of the U.K.’s largest mortgage providers, said earlier this month that house prices could collapse by up to 30% in its worst-case scenario. Meanwhile, the gloomiest of 2023 estimates from banks Lloyds and Barclays point to drop-offs of almost 18% to over 22%, respectively.

Indeed, prices have already begun falling in some places, according to property search site Rightmove, which said Monday that sellers cut prices by 1.1% in October, taking the average price of a newly-marketed home to £366,999 ($431,000).

Increased mortgage delinquency concerns

The U.K. is not alone. Rising interest rates, soaring inflation and the economic shock from Russia’s war in Ukraine have weighed heavy on the global housing market.

Recent analysis by Oxford Economics showed property prices look set to fall in nine of 18 advanced economies, with Australia, Canada, the Netherlands and New Zealand among the markets most at risk of declines of up to 15%-20%.

“This is the most worrying housing market outlook since 2007-2008, with markets poised between the prospect of modest declines and much steeper ones,” Adam Slater, lead economist at Oxford Economics, wrote last month.

Housing surveyors have reported the largest fall in new buyer inquiries in October since the financial crisis, excluding the period during the Covid-19 lockdowns.

Isabel Infantes | Afp | Getty Images

But the U.K.’s unique economic landscape puts it at higher risk of mortgage delinquencies, according to Goldman Sachs. Factors at play include Britain’s worsening economic picture, the sensitivity of default rates to downturns, and the shorter duration of U.K. mortgages relative to euro zone and U.S. peers.

“Looking across countries, we see a relatively greater risk of a meaningful rise in mortgage delinquency rates in the U.K.,” Yulia Zhestkova, an economist at the bank, wrote in a report last week.

Meantime, rising unemployment risks — a historic barometer of delinquency rates — add to pressure on the U.K., which Goldman Sachs said is “already in recession.”

Unemployment risks weigh heavy

The U.K. economy contracted 0.2% in the third quarter of 2022, latest GDP figures showed Friday. A further consecutive quarter of decline in the three months to December would indicate that the U.K. is in a technical recession.

The Bank of England warned earlier this month that the U.K. now faces its longest recession since records began a century ago, with the downturn expected to last well into 2024.

If unemployment were to rise sharply, the dangers to housing markets would be amplified considerably.

Adam Slater

lead economist, Oxford Economics

Describing the outlook as “very challenging,” the central bank said unemployment would likely double to 6.5% during the two-year slump, affecting around 500,000 jobs.

Such a spike in unemployment could “considerably” raise the risks for the housing market by potentially creating a wave of forced sales and foreclosures, Oxford Economics warned in its report. Indeed, according to Goldman Sachs’ analysis, for every one percentage point increase in the U.K. unemployment rate, mortgage delinquency tends to rise by over 20 basis points after one year.

“If unemployment were to rise sharply, the dangers to housing markets would be amplified considerably,” Slater said.

Not a 2008 financial crisis

Still, much of the outlook will hinge on the government’s upcoming fiscal statement Thursday, when Finance Minister Jeremy Hunt is expected to unveil £60 billion ($69 billion) of tax hikes and spending cuts set to weigh heavy on growth.

Some strategists have said Hunt could delay much of the savings until after the next election — due no later than January 2025 — in a bid to shield the economy during the height of recession. However, Hunt has been candid in warning of “eye-watering” decisions ahead.

The Bank of England, for its part, has insisted that it will continue to raise rates, albeit to a potentially lower peak.

Yet even with little let-up expected for the housing market in the near-term, economists say the risks of a shock reverberating across the wider financial market are minimal.

Greater regulation and adequate capitalization of the banking sector following the financial crisis have limited exposure to risky mortgages. Meanwhile, the majority of housing debt sits with households with reasonable savings buffers, Berenberg’s Pickering said.

“We see limited risk that the unfolding housing market correction will morph into another financial crisis,” he added.

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November 14, 2022
Top Morningstar strategist says stocks are undervalued by 15% and shares 6 favorites

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November 14, 2022
Fed Vice Chair Brainard is ‘reassured’ by inflation report

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WASHINGTON — Federal Reserve Vice Chair Lael Brainard said Monday that she was encouraged by last week’s U.S. inflation report, which pointed to slower price increases, and said the Fed would likely soon reduce the size of its interest rate hikes.

“The inflation data was reassuring, preliminarily,” Brainard said. “It will probably be appropriate, soon, to move to a slower pace of rate increases.”

Brainard’s comments, during a discussion at Bloomberg, were more positive toward the inflation report than were those of several of her Fed colleagues last week. Some central bank officials have sought to temper the stock market‘s ebullient response to the better-than-expected inflation report, which suggested that the rampant price spikes of the past 18 months were moderating.

The Fed is considering raising rates in smaller increments after having increased its key short-term rate, which affects many consumer and business loans, by a substantial three-quarters of a point at four straight policy meetings. Yet the central bank doesn’t necessarily want the stock market to jump in response. A major sustained stock rally tends to cause consumers and businesses to spend more and can undercut the Fed’s efforts to cool economic growth and inflation.

On Sunday, Christopher Waller, a member of the Fed’s influential Board of Governors, suggested that “everybody should just take a deep breath” after last week’s inflation report, because it “was just one data point.”

“We’re going to need to see a continued run of this kind of behavior and inflation slowly starting to come down,” Waller said, “before we really start thinking about taking our foot off the brakes.”

On Monday, Brainard pointed approvingly to a decline in goods inflation: The costs of used cars, clothes and furniture all fell from September to October. Those price declines reflected the unsnarling of previously clogged global supply chains, which had caused inflation spikes last year and earlier this year.

The central bank can now take a more deliberative approach, Brainard said, after having raised its key short-term rate to a range of 3.75% to 4%, a level she said will restrict economic growth over time.

The Fed’s vice chair noted that it can take time for rate increases to affect the overall U.S. economy. In the past, Brainard has made that point in explaining that raising rates in smaller increments would give the Fed time to judge how its earlier rate increases were working.

As the Fed’s policies start to restrict growth, Brainard said, the policymakers will start considering the risk that they could go too far and raise rates higher than needed, thereby causing a recession.

“As we get into restrictive territory, or further into restrictive territory, risks become more two sided.” she said. That is, the dual risks would be that inflation could stay too high or that the Fed would slow the economy too sharply.

Thursday’s data showed that consumer prices rose 7.7% in October compared with a year ago — still a painfully high level, but down from a peak of 9.1% in June. And a separate gauge that measures “core prices,” which exclude volatile food and energy, rose just 0.3% from September to October, half the pace of the previous two months.

In her remarks Monday, Brainard underscored that the Fed would continue to raise rates in the coming months.

“What’s really important to emphasize,” Brainard said Monday, “is we’ve done a lot, but we have additional work to do both on raising rates and sustaining restraint to bring inflation down to 2% over time.” That was a reference to the Fed’s annual 2% inflation target.

Speaking at a news conference earlier this month, Chair Jerome Powell signaled that the Fed may scale back its rate hikes to a half-point as soon as its meeting in mid-December. Historically speaking, that would still amount to a sizable increase. In the past, the Fed has most commonly raised or cut rates by just a quarter-point.

The stock market soared after Thursday’s inflation report on hopes that cooling inflation would allow the Federal Reserve to slow its interest rate increases. T he Dow Jones surged 1,200 points, its best day in two years. Stocks added further gains on Friday.

In the wake of the market’s celebratory response to the inflation data, several Fed policymakers sought last week to cool the enthusiasm.

“One month of data does not a victory make, and I think it’s really important to be thoughtful, that this is just one piece of positive information,” said Mary Daly, president of the San Francisco Federal Reserve.

Lorie Logan, president of the Dallas Fed, added Thursday that the inflation figures “were a welcome relief” but made clear that further Fed rate hikes are coming, though possibly at a slower pace.

In her remarks Monday, Brainard pointed to other signs that inflation pressures are cooling. She noted that two gauges of worker pay have shown that wage growth is declining.

“That does suggest … lessening wage pressures,” she said.

Though Powell has said that rapid wage growth is not a principal driver of inflation, pay raises can perpetuate price hikes, particularly in services such as restaurants, hotels and airlines, as companies pass on to customers the cost of higher labor through price increases.

Brainard also said the collapse of the FTX cryto exchange and its effects on other parts of the crypto universe, such as lender BlockFi, show that cypto is “highly concentrated, highly interconnected” and there “need to be strong regulatory guardrails.”

“It is really concerning to see that retail investors are getting hurt by these losses,” she said.

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November 14, 2022
Smaller food cos. get set for a high-priced holiday season

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NEW YORK — Holiday celebrants in Hilo, Hawaii, might notice something different about the traditional Yule Log cake from the Short ’N Sweet bakery this year.

Maria Short typically makes her popular $35 bûche de Noël with two logs combined to look like a branch. This year, thanks to soaring prices for eggs and butter and other items, she’s downsizing to one straight Yule log.

“It’s the same price, but smaller,” she said. “That cuts down on size and labor.”

Higher prices are hitting everyone this holiday, but food vendors are seeing some of the biggest increases. Small businesses that count on food-centric holidays like Thanksgiving and Christmas are bracing for a difficult season.

At the wholesale level, egg prices are more than triple what they were a year ago, milk prices are up 34% and butter is up 70%, according to data from the U.S. Department of Agriculture. Businesses are also paying more for everything from packages to labor.

Many owners are raising prices to offset the higher costs. But raising prices too much risks driving away the crucial holiday shopper. So, businesses are adapting: adjusting the way they make products, changing gift basket components and adding free gifts instead of giving discounts, among other steps.

Maria Short says that even for Hawaii, where the cost of living is among the highest of any U.S. state, the price increases are “drastic.”

For example, she says, the Short N Sweet Bakery is paying $123 for a case of eggs that cost $42 in October last year. A case of butter that was $91 in October ago; it’s $138 this year.

Among the ways Short is cutting costs, she’ll use a generic box decorated with stickers instead of using a customized box for her desserts. And she ordered a cookie printer rather than having bakers hand-pipe frosting, to save on labor costs.

Sarah Pounders, who co-owns Nashville-based Made in TN, a retailer of locally made food and gifts, says the local vendors who make the items she sells are facing higher prices. The cost of butter needed to make cookies is five times the price from a year ago and cardboard packaging is double.

Made in TN has raised some prices and is selling other items for less profit. Customers are already paying more for things like gas, clothing and cars, as well as services like eating out and travel, so they’re not as quick to spend as they might have been in prior years. They’re noticing the price increases, she said.

“If bread is up 50 cents you will still buy bread,” Pounders said. “But if it’s an impulse buy or luxury specialty item — if chocolate-covered cookies are up $1 — you might think twice.”

Price increases aren’t an option for her popular gift basket business. Corporations often have a $50 cap and events at hotels like weddings can have a $20 sweet spot. So, Pounders has made adjustments. In some cases, she has replaced a $20 bag of coffee, which is up $3, with less expensive hot chocolate. Or she puts one less chocolate bar in the basket.

She’s also buying more items that could sell throughout the year and less seasonal inventory like peppermint bark and hot chocolate on a stick.

“Every year is a guess, and the economy makes it even more volatile,” she said.

Eric Ludy, co-founder of Cheese Brothers, an online purveyor of Wisconsin cheese and gift baskets, faces a tricky task this holiday season as he tries to offset higher costs for packaging, labor — and cheese. Half of his business comes in the weeks between Black Friday and Christmas.

Cheese Brothers has nominally raised prices for their cheese – a block of cheddar will cost customers $7.50 instead of $7, for example. Ludy says he’ll also rely less on discounts this year and more on gifts and other giveaways.

A bit of a gamble that Ludy is taking is upping the spending limit for free shipping to $70 from $59.

“People buy enough to get free shipping, it’s a huge motivator,” he said. He hopes raising the shipping price could push the average order up to $70. But it could also stop people from clicking the “Buy” button.

“We might start to see people push back and not buy as much,” he said. “It’s a delicate balance.”

Americans eat an estimated 40 million turkeys during the holidays, according to industry group The National Turkey Federation. But turkey purveyors are facing a double whammy this Thanksgiving: higher prices plus an avian flu epidemic that is shaping up to be one of the worst in history.

Kevin Smith, owner of Beast and Cleaver, a butcher shop in Seattle, Washington, gets his turkeys from small, local farms. He says he’s paying $6 a pound for turkey this year, up from $3.80 to $4.20 last year. In addition, he only plans to sell 150 turkeys this year, down from 250 last year, due to shortages caused by the avian flu.

Still, Smith doesn’t plan to charge more for turkey than he did last year: $9 a pound. He says he has a “solid base of customers” willing to pay for more local, sustainable turkeys, but there’s a limit.

“We don’t want people to have to pay $12 a pound for turkey,” he said.

He’s raising the price of other items, like ground sausage and pates, to offset the higher costs of poultry. And while the rush of panic-buying during the pandemic has subsided, he’s still expecting a good holiday season.

“We’re still very busy,” he said. “It’s just a more stable busy.”

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November 13, 2022
How major US stock indexes fared Friday 11/11/2022

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Wall Street tacked more onto its stupendous surge from a day before, leaving the market with its biggest weekly gain since the summer.

The S&P 500 rose 0.9% Friday, and the Nasdaq rose twice as much. Markets got a boost after China relaxed some of its anti-COVID measures, while a report suggested U.S. inflation expectations ticked modestly higher.

Stocks soared this week on hopes the worst of inflation may have passed and that the Federal Reserve can be less aggressive about raising interest rates, though some analysts called the rally overdone. Crypto sank after a major exchange filed for bankruptcy.

On Friday:

The S&P 500 rose 36.56 points, or 0.9%, to 3,992.93.

The Dow Jones Industrial Average rose 32.49 points, or 0.1%, to 33,747.86.

The Nasdaq rose 209.18 points, or 1.9%, to 11,323.33.

The Russell 2000 index of smaller companies rose 14.81 points, or 0.8%, to 1,882.74.

For the week:

The S&P 500 is up 222.38 points, or 5.9%.

The Dow is up 1,344.64 points, or 4.1%.

The Nasdaq is up 848.08 points, or 8.1%.

The Russell 2000 is up 82.87 points, or 4.6%.

For the year:

The S&P 500 is down 773.25 points, or 16.2%.

The Dow is down 2,590.44 points, or 7.1%.

The Nasdaq is down 4,321.64 points, or 27.6%.

The Russell 2000 is down 362.57 points, or 16.1%.

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November 11, 2022
Average long-term US mortgage rate back above 7% this week

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WASHINGTON — The average long-term U.S. mortgage rate returned to the 20-year highs of two weeks ago when rates breached 7% for the first time since 2002.

Mortgage buyer Freddie Mac reported Thursday that the average on the key 30-year rate rose to 7.08% from 6.95% last week. A year ago the average rate was 2.98%.

The rate for a 15-year mortgage, popular with those refinancing their homes, climbed to 6.38% from 6.29% last week. It was 2.27% one year ago.

Last week, the Federal Reserve raised its short-term lending rate by another 0.75 percentage points, three times its usual margin, for a fourth time this year as part of its inflation-fighting strategy. Its key rate now stands in a range of 3.75% to 4%.

More increases are likely coming, though there is some hope that the Fed will dial them down as more evidence comes in that prices have peaked.

The Labor Department reported Thursday that consumer inflation reached 7.7% in October from a year earlier, the smallest year-over-year rise since January. Excluding volatile food and energy prices, “core” inflation rose 6.3% in the past 12 months. The numbers were all lower than economists had expected.

Thursday’s report raised the possibility that the Fed could decide to slow its rate hike, a prospect that sent stock prices jumping as soon as the data was released.

Two weeks ago, the average long-term U.S. mortgage rate topped 7% for the first time in more than two decades, which combined with sky-high home prices, have crushed homebuyers’ purchasing power by adding hundreds of dollars to monthly mortgage payments.

Sales of existing homes have declined for eight straight months as borrowing costs have become too big of an obstacle for many Americans already paying more for food, gas and other necessities. Additionally, many homeowners seeking to upgrade or change locations have held off listing their homes because they don’t want to jump into a higher rate on their next mortgage.

The sagging housing market has prompted real estate companies to dial back their financial outlooks and shrink their workforces. Online real estate broker Redfin on Wednesday said it was cutting 862 employees and shutting down its instant-cash-offer subsidiary RedfinNow.

Redfin also laid off 470 employees in June, blaming slowing home sales. Through attrition and layoffs, Redfin has slashed more than a quarter of its workforce on the assumption that the housing downturn will last “at least through 2023,” it said in a regulatory filing.

Another online real estate broker, Compass, has laid off hundreds of workers this year.

While mortgage rates don’t necessarily mirror the Fed’s rate increases, they tend to track the yield on the 10-year Treasury note. The yield is influenced by a variety of factors, including investors’ expectations for future inflation and global demand for U.S. Treasurys.

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November 10, 2022
Wall Street soars at the opening bell after inflation eased by even more than expected in October; S&P 500 jumps by 3.5%

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Wall Street soars at the opening bell after inflation eased by even more than expected in October; S&P 500 jumps by 3.5%

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November 10, 2022
Paris Metro workers strike for wage hike, disrupt commutes

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PARIS — Striking subway workers shut down half of the Paris Metro lines Thursday, a nationwide day of walkouts and protests by French train drivers, teachers and other public-sector workers demanding the government and employers increase salaries to keep up with inflation.

Expecting major disruptions on their morning commutes, many Parisians biked or walked to work. Others took buses that were provided as an alternative way to reach offices and workplaces, or reverted to their pandemic lockdown routines and worked from home.

Protest rallies were planned in Paris and other French cities later Thursday, amid deepening worker discontent around Europe.

The strikes in France build on multiple union actions in recent months by French workers demanding higher wages to keep up with the rising cost of living. Last month, a strike by oil refinery workers caused nationwide fuel shortages that disrupted lives and businesses. The French government intervened to force them back to work.

Europe has faced a series of protests and strikes in recent months over soaring inflation. Nurses, pilots, postal workers. railway staff and others have walked off the job, seeking wages that keep pace with inflation as Russia’s war in Ukraine has driven up energy and food prices.

Labor unions also have organized street protests to pressure governments to do more to ease rising bills even as European leaders have passed energy relief packages.

Nationwide general strikes over cost of living increases caused by inflation and higher energy costs linked to Russia’s war in Ukraine snarled traffic through much of Belgium and shut down public services in Greece on Wednesday.

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November 10, 2022