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Tag: the fed

  • Why is Wall Street cheery all of a sudden? | CNN Business

    Why is Wall Street cheery all of a sudden? | CNN Business

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    New York
    CNN
     — 

    It’s only early January, but so far in 2023 the pendulum on Wall Street has swung (to paraphrase Billy Joel) from sadness to euphoria.

    Stocks are off to a solid start following last year’s dismal performance. Even though the Dow fell more than 110 points, or 0.3%, to close Monday’s session it is still up more than 1% this year. The S&P 500 ended Monday down 0.1% while the Nasdaq gained 0.6%. But those two indexes are each up about 1.5% since the end of 2022.

    Even the CNN Business Fear and Greed Index, which looks at seven indicators of market sentiment, is now inching closer to Greed territory — after languishing in Fear mode for the better part of the past few weeks.

    But why is there such optimism on Wall Street all of a sudden? The headlines still aren’t necessarily that great.

    Yes, the market cheered Friday’s jobs report because it showed slowing wage growth that could lead to a further reduction in inflation pressures and smaller rate hikes from the Federal Reserve. But it also showed the pace of job growth is slowing — and that could be a precursor to an eventual recession.

    Meanwhile the Institute for Supply Management’s latest data showed the services sector, a big engine of the US economy, contracted last month. And several high-profile companies in the tech, consumer, financial services (and yes, media) industries have announced big layoffs or unveiled plans to hand out pink slips. Retailers such as Macy’s

    (M)     and Lululemon

    (LULU)     are warning about sales and profits.

    Add all this up and it doesn’t sound like cause for celebration.

    But Wall Street is a funny place: Good news is often viewed as a bad sign, and vice versa.

    Sure, it would be a big plus if the Fed is able to pull off a proverbial soft landing, slowing the economy without leading to a full-blown recession and/or significant decline in corporate profits. But that’s a big if.

    There’s another possibility that bulls are clinging to as well: that there will be a recession, but a mild one that also just so happens to be one of the most widely expected and telegraphed downturns in recent memory. This isn’t a proverbial black swan. There is no “Lehman moment” to catch everyone off guard.

    As long as the Fed can get inflation under control, investors might not be too concerned by a recession anyway. At least, that’s the ‘glass is half full’ argument.

    “Any recession will be perceived by investors to be less problematic if inflation is judged to be sufficiently contained, and the Fed is prepared to mount an appropriate monetary response,” said Robert Teeter, managing director of Silvercrest Asset Management, in a report.

    Teeter added that falling inflation levels should boost stocks this year “even as earnings remain lackluster.”

    But others see a problem with that argument.

    “Our concern is that most [investors] are assuming ‘everyone is bearish’ and, therefore, the price downside in a recession is also likely to be mild,” said strategists at Morgan Stanley in a report.

    Instead, the Morgan Stanley strategists think investors might be surprised by just how much lower stocks go if there is a recession. They noted that the market may not be pricing in “much weaker earnings.”

    Investors may also be underestimating how far the Fed is willing to go with rate hikes in order to make sure inflation finally starts to fall.

    “Many investors have been reassured by the strength of the US labor market. Yet…the Federal Reserve is determined to tighten monetary policy until that strength is eradicated — the recession clock is ticking,” said Seema Shah, chief global strategist at Principal Asset Management, in a report.

    And Shah does not believe the recession will be mild. She wrote after Friday’s jobs report that “a hard landing looks to be the most likely outcome this year.”

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  • Bonds are back, but for how long? | CNN Business

    Bonds are back, but for how long? | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    Stocks soared on Friday to their best day in more than a month. The Dow gained 700 points and the S&P 500 and Nasdaq rose by 2.3% and 2.6% respectively, as traders bet that a slowdown in wage growth could mean that inflation may finally be cooling off.

    But the big turnaround story during the short first week of the year isn’t just about equities, it’s also about bonds.

    What’s happening: US Treasuries recorded their worst year in history in 2022, but investors are suddenly reversing course. They now appear quite optimistic about the bond market. 

    Last year’s bond massacre came as the Fed raised short-term interest rates at the fastest speed in about four decades, lifting the Fed funds rate to its highest level in over a decade. Bonds are particularly sensitive to those increases — as rates are hiked, the price of existing bonds falls as investors prefer the new debt that will soon be issued with those higher interest payouts.

    But now investors are betting that those rate increases are mostly over and that inflationary pressures are on a downswing.

    Treasuries just notched their strongest start to a year since 2001, back when investors eagerly purchased government debt under the (correct) assumption that then-Fed chair Alan Greenspan was about to slash interest rates. This time around, investors are scooping up bonds as they anticipate the pace of Fed interest rate hikes will soon ease.

    That’s great news for Treasuries. Core bonds, or US investment grade debt, tend to perform well during Fed rate hike pauses. Since 1984, core bonds have been able to generate average 6-month and 1-year returns of 8% and 13%, respectively, after the Fed stopped raising rates, according to data from LPL Financial.

    That anticipation could be seen at the end of last week. Treasuries tumbled following strong private jobs data earlier in the week but quickly rebounded when US payroll data showed that wage growth was weakening.

    The gains are in sync with economists’ positive outlooks for falling yields and rising bond prices in 2023.

    The other side: The problem is that there’s no guarantee that interest rates will actually come down, and investors could find themselves blindsided if they don’t.

     “The potential for rates to go high and stay higher for longer would hit bond markets hard, especially considering weaker economies would likely force governments to borrow more,” said Chris Varrone, managing director at Strategas, a Baird Company.

    Former Treasury Secretary Larry Summers issued a warning on Friday to bond investors who assume that inflation is easing and a new era of low interest rates is upon us.

    “I suspect tumult” for bonds in 2023, Summers said on Bloomberg Television. “This is going to be remembered as a ‘V’ year when we recognized that we were headed into a different kind of financial era, with different kinds of interest-rate patterns.”

    Persistently high inflation may have put a damper on holiday shopping.

    Macy’s chair and CEO Jeff Gennette said Friday that lulls during the non-peak weeks of the fourth quarter “were deeper than anticipated” and that consumers will continue to feel pressured into 2023, reports my colleague Ramishah Maruf.

    Macy’s said Friday its net sales from the holiday quarter will likely be at the low-end to mid-point of its previously issued forecast range of $8.16 billion to $8.4 billion. It reported Q4 sales of $8.67 billion in 2021.

    Americans spent more this season to keep up with high prices. US retail sales increased 7.6% during the period between November 1 to December 24 compared to the same time last year, according to the Mastercard Spending Pulse. US retail sales were lower than expected in November, falling 0.6% during the month, which was the weakest performance in nearly a year.

    Gennette warned that consumer sentiment is unlikely to change with the new year.

    “Based on current macro-economic indicators and our proprietary credit card data, we believe the consumer will continue to be pressured in 2023, particularly in the first half, and have planned inventory mix and depth of initial buys accordingly,” the Macy’s CEO said.

    The company expects to report full results for the fourth quarter and fiscal year 2022 in early March 2023.

    China’s heavy-handed crackdown on tech giants is coming to an end and the country’s economic growth is expected to be back on track soon, according to a top central bank official, my colleague Laura He reports.

    The crackdown on fintech operations of more than a dozen internet companies is “basically” over, said Guo Shuqing, the Communist Party boss at the People’s Bank of China, in an interview with state-run Xinhua news agency on Saturday.

    “Next, we’ll promote healthy development of internet platforms,” said Guo, who is also chairman of China’s Banking and Insurance Regulatory Commission. “We’ll encourage them to come out strong in leading economic growth, creating more jobs, and competing globally.”

    His remarks came on the same day Chinese billionaire Jack Ma gave up control of Ant Group after the fintech giant’s shareholders agreed to restructure the company.

    Chinese tech stocks listed on US exchanges have already enjoyed a dream start to 2023.

    The Nasdaq Golden Dragon China Index — a popular index tracking Chinese firms listed in the United States — soared 13% in the first two trading days of 2023. That was the index’s best yearly start on record, according to data compiled by Refinitiv dating back to 2003.

    US-listed shares of Chinese e-commerce firms Alibaba

    (BABA)    , JD.com

    (JD)    , and Pinduoduo

    (PDD)     added $53 billion to their combined market value last Wednesday alone.

    The sweeping regulatory crackdown since late 2020 had driven investors away. In 2021 and 2022, the Nasdaq Golden Dragon China Index plummeted 46% and 25% respectively.

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  • America capped off an extraordinary year for job growth, adding 223,000 positions in December | CNN Business

    America capped off an extraordinary year for job growth, adding 223,000 positions in December | CNN Business

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    Minneapolis
    CNN
     — 

    The US economy added 223,000 jobs in December, according to the monthly employment report from the Bureau of Labor Statistics, capping a year of extraordinary job growth and marking the second-best year for the labor market in records that go back to 1939.

    The unemployment rate fell back to a record low of 3.5% from a revised 3.6% in November.

    Economists were expecting 200,000 job gains for the last month of the year, according to Refinitiv. December’s job total is lower than the downwardly revised 256,000 jobs added in November.

    Including last month’s gains, which are subject to revision, the economy added about 4.5 million jobs in 2022. That’s the second-highest-ever total, after the 6.7 million jobs added in 2021 — a boomerang from 2020’s 9.3 million job losses.

    The labor market slowed in 2022, compared to the previous year’s tear. December’s jobs total represents the lowest monthly gains in two years.

    Those latest gains come following months of jumbo interest rate increases from the Federal Reserve in its attempt to cool off the economy after inflation last year hit its highest level since the 1980s. Those efforts have, so far, remained mostly elusive.

    That means the Fed is entering 2023 looking for a considerably softer and looser labor market — notably, increased labor participation, a better alignment of job seekers to open positions, and lower levels of wage growth.

    “This is about the best report one could hope for, given a still very hot US labor market,” said Joe Brusuelas, principal and chief economist for RSM US.

    Wall Street responded positively to Friday’s jobs data, with the Dow rising by almost 500 points by mid-morning — mostly a reaction to the slower pace of wage growth. Average hourly earnings increased 0.3% over the previous month and 4.6% annually. That’s compared to 0.4% month-on-month growth in November and 4.8% annual growth.

    The December report showed that the labor force participation rate, an estimation of the active workforce and people looking for work, ticked up to 62.3% from 62.2%.

    Labor force participation rates have been on a decline — largely due to demographic changes and aging Baby Boomers — since hitting a high of 67.3% in early 2000, and had fallen to 63.3% in the month before the onset of the pandemic. The participation rate has not returned to pre-pandemic levels, vexing economists and the Fed, while also contributing to an imbalance of worker supply and demand.

    “The labor market is moving in the right direction for the Federal Reserve, according to the December employment report, but is not there yet,” Gus Faucher, senior economist for PNC Financial services said in a statement. “Job growth is slowing to a more sustainable pace, and wage growth is softening as demand in the job market slackens somewhat.”

    However, with job growth well above pre-pandemic levels, when job gains averaged 164,000 in 2019, and the unemployment rate returning to a 50-year low, there is little indication that there will be enough of a boost in the labor force to help cool off the job market, he said.

    Some of the largest monthly gains were in industries such as leisure and hospitality, health care, and accommodation and food services, which all were hit hard during the pandemic. There were also notable monthly job losses in technology and interest-rate-sensitive sectors that surged during the pandemic and are now rebalancing as consumers shift spending toward services.

    Industries such as information, finance and professional and business services, shed jobs between November and December.

    The losses seen in areas such as professional and business services are likely an effect of the waves of mass layoffs hitting the tech industry, said Ken Kim, a senior economist at KPMG.

    “We are seeing a little bit of spread to other areas,” he said.

    In addition to Friday’s strong jobs numbers, several other pieces of jobs data released this week continue to reflect a healthy labor market. Wednesday’s Job Openings and Labor Turnover Survey (JOLTS) report showed that the number of available jobs remained steady at 10.5 million in November. It also showed that quits, layoffs and hires didn’t really show any major signs of cooling that month.

    ADP’s private-sector employment report on Thursday also showed a robust labor market, with 235,000 jobs added in the private sector during December, well exceeding expectations of 150,000.

    And Thursday’s weekly jobless claims fell by 21,000 to 204,000 for the week ending November 26, while continuing claims decreased to 1.69 million from 1.72 million to 1.61 million.

    —CNN’s Matt Egan contributed to this report.

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  • Global markets struggle to put last year’s misery behind them | CNN Business

    Global markets struggle to put last year’s misery behind them | CNN Business

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    London
    CNN
     — 

    European and Asian stocks pushed higher on the first major trading day of 2023 as investors try to look beyond a gloomy outlook for the world economy, China’s worst Covid outbreak and stubbornly high inflation in Europe.

    But after a positive start, Wall Street succumbed to fear again. The S&P 500 gained 0.4% in early trading Tuesday, while the Nasdaq Composite was up 0.8%. By midday, however, both indexes were trading weaker, down 0.3% and 1.2% respectively.

    Shares of Tesla

    (TSLA)     plunged more than 13% after the electric car giant reported weaker than expected global sales for the fourth quarter. Apple sank 3.8%, bringing its market cap to $2 trillion. An impressive number, for sure, but about $1 trillion less than its valuation at this time last year.

    Europe’s Stoxx 600 index rose 1.2% by 12.10 p.m. ET, off earlier highs but extending strong gains posted Monday when Chinese and US markets were closed. Germany’s DAX rose 0.8%, while France’s CAC gained 0.4%.

    US markets are waiting for the first major economic news of the year, due later this week. A key report on manufacturing, new data on labor market openings and the minutes from the latest Federal Reserve meeting are due out Wednesday. The jobs report for December will be released Friday.

    Investors in Europe were buoyed by survey data, released Monday, showing that supply chain and inflation pressures were easing slightly for manufacturers in the economies that use the euro currency.

    Shortages of parts in Germany, the biggest economy in Europe, have also abated, according to data released by the Institute for Economic Research (Ifo) on Tuesday. Inflation in the country continues to trend downwards. Data published Tuesday by the German Federal Statistics Office showed that consumer prices rose 8.6% in December, compared with 10% the previous month, and 10.4% in October.

    London’s FTSE 100 index clocked up gains of 2.3% in morning trading, before easing slightly to stand 1.4% higher.

    Holger Schmieding, chief economist at Berenberg bank, struck a cautiously optimistic note about the year ahead.

    “Unless a major new geopolitical shock intervenes, the new year could be far less unsettled than 2022. Especially for Europe, the outlook continues to become substantially less negative,” he wrote in note Tuesday.

    In Asia, markets ended the day firmly in positive territory, recovering from early losses.

    Hong Kong’s Hang Seng Index dropped by as much as 2% after a closely watched private survey showed China’s economy ended last year with a slump in factory activity. But the index soon reversed course to gain 1.8% by the close, as hopes for the reopening of the city’s border with mainland China on January 8 boosted stocks.

    Stocks in mainland China also had a choppy first-day trading. The Shanghai Composite opened lower, but then clawed back losses to close 0.9% higher.

    Tuesday’s market gains provide cheery news for investors after a rollercoaster 2022 that saw $33 trillion wiped off global equity markets.

    Many suffered deep losses in 2022 as central banks hiked interest rates at an unprecedented clip in a bid to control surging inflation.

    The S&P 500 lost 19.4% over the past 12 months — its worst year since 2008 — despite hitting an all-time high last January. Europe’s Stoxx 600 index fell 12.9%, its steepest annual loss since 2018. Hong Kong’s Hang Seng dropped 15.5%, its weakest performance since 2011.

    Predicting the state of markets is notoriously tricky — and often downright wrong — but it looks likely that many of last year’s economic headwinds will stick around, and some could get even worse.

    Kristalina Georgieva, head of the International Monetary Fund, warned in an interview with CBS that aired on Sunday that 2023 will be tougher on the global economy than 2022 was.

    Georgieva said that the world’s three biggest economies, the United States, the European Union and China, are all “slowing down simultaneously,” and the IMF expected “one third of the world economy to be in recession” this year.

    “Almost everyone is going into 2023 with a healthy dose of trepidation,” Craig Erlam, senior market analyst at Oanda, said in a Tuesday note.

    “The outlook is understandably gloomy and will remain so unless something significant changes, either on the war in Ukraine or inflation,” he added.

    Investors can expect the world’s central banks to continue hiking interest rates to tame historic levels of inflation, despite signs that price rises globally have started to cool, in part due to a drop in energy prices.

    Both the European Central Bank and US Federal Reserve have said they plan to continue to raise the cost of borrowing in the near term, a move that typically hurts companies’ profits — and their investors.

    China is also unpredictable. While investors are broadly happy that the country ditched its strict zero-Covid policy last month — promising to lift demand across the world’s second-biggest economy — rocketing numbers of cases and a potential contraction in the early part of 2023 could limit gains.

    — Paul LaMonica, Julia Horowitz and Laura He contributed reporting.

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  • Fed watch 2023: When will rate hikes slow down | CNN Business

    Fed watch 2023: When will rate hikes slow down | CNN Business

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    Minneapolis
    CNN
     — 

    America’s central bank found itself in a glaring spotlight for much of this past year, as Federal Reserve Chairman Jerome Powell wielded blunt tools of interest rate hikes and quantitative tightening to curb surging inflation.

    As 2022 draws to a close, inflation metrics show some of that may have worked: Consumer prices are cooling, home sales have ground to a halt, and some of America’s best-known companies have made plans to slow their roll and pull back on capital investment.

    The latest measure of inflation showed that the Consumer Price Index for November came in at 7.1%, down from the 40-year high of 9.1% hit in June; prices for used cars, lumber and gas — once poster children for the painfully steep price hikes — have come down; and housing prices and rents have also been on a downward trajectory.

    “This idea of peak inflation, which people have been talking about for most of the year, is starting to look like it’s valid,” said Thomas Martin, senior portfolio manager at Globalt Investments. “It’s just how quickly does that come down?”

    In a matter of weeks, the Fed’s Act II gets underway.

    The Fed’s recently revised script calls for the federal funds rate, the central bank’s benchmark borrowing rate, to move higher, but at a slower pace than in the past several months.

    While the Fed has — finally — eked out some small victories in slowing the economy, after seven bumper rate hikes, the robust and historically tight labor market has remained a thorn in the central bank’s side. When the number of available jobs far outpaces those looking for work, wages can rise, which in turn could keep prices higher for longer.

    That means the Fed, with its “laser focus on the job market,” could be “continually hawkish” at the start of 2023, said Ross Mayfield, investment strategy analyst at Baird.

    There are already signs that the labor market is softening: Quits and hires have edged downward, while layoffs have moved higher; continuing claims have grown to their highest level since February; and the number of jobs added each month has started to nudge slowly lower.

    However, a “structural labor shortage” remains a major headwind, Powell noted in December, attributing the lack of workers to early retirements, caregiving needs, Covid illnesses and deaths, and a plunge in net immigration.

    As such, employers are hesitant to lay people off, and other areas of the economy are showing such strength that those who are unemployed are able to get rehired quickly, Mayfield said.

    “This latent strength in the job market could be the reason that the Fed over-tightens,” he told CNN. “The rest of the economy, to us, is very clearly signaling slowdown, imminent recession. And when you see the Fed revising their unemployment projections up, revising their GDP growth number down, it seems that they agree.”

    He added: “So, I would hope that they would take their own advice and pause fairly soon.”

    The December projections showed a more aggressive monetary policy tightening path, with the median forecast rising to a new interest rate peak of 5%-5.25%, up from 4.5%-4.75% in September. That would mean Fed officials expect to raise rates by half a percent more than they did three months ago, when the Fed’s economic predictions were last released.

    Jerome Powell, chairman of the US Federal Reserve, from right, Lael Brainard, vice chair of the board of governors for the Federal Reserve System, and John Williams, president and chief executive officer of the Federal Reserve Bank of New York, during a break at the Jackson Hole economic symposium in Moran, Wyoming, on Aug. 26, 2022.

    Policymakers also projected that PCE inflation, the Fed’s favored price gauge, would remain far above its 2% target until at least 2025. Further projections showed souring expectations for the health of the US economy, with Fed officials now predicting that unemployment will rise to 4.6% by the end of 2023 and remain at that level through 2024. That’s 0.2 percentage points higher than the 4.4% rate they were expecting in September and significantly higher than the current 3.7% rate.

    Based on projections from Fed officials and other economists, the pathway has narrowed for the desired “soft landing” of reining in inflation while avoiding recession or significant layoffs.

    “It’s been pretty impressive how well the consumer has held up over the past 18 months, and not pulling the rug out from under the consumer is pretty much how you get to the soft landing,” Mayfield said.

    “I think it’s a really, really narrow path, and the Fed’s tone [during its December meeting] doesn’t give me a lot of optimism that they can navigate that without hitting a recession. … If a soft landing is avoiding a recession altogether, then I think that’s a pretty tough task. If it’s a milder recession than recent history, I think that’s still in the cards.”

    The Federal Open Market Committee, the central bank’s policymaking arm, holds eight regularly scheduled meetings per year. Over the course of two days, the 12-member group looks through economic data, assesses financial conditions and evaluates monetary policy actions that are announced to the public following the conclusion of its meeting on the second day, along with a press conference led by Chair Powell.

    Below are the meetings tentatively scheduled for 2023. Those with asterisks indicate the meeting with a Summary of Economic Projections, which includes the chart colloquially known as the “dot plot” that shows where each Fed member expects interest rates to land in the future.

    • January 31-February 1
    • March 21-22*
    • May 2-3
    • June 13-14*
    • July 25-26
    • September 19-20*
    • October 31-November 1
    • December 12-13*

    — CNN’s Nicole Goodkind contributed to this report.

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  • The US economy grew much faster than previously thought in the third quarter | CNN Business

    The US economy grew much faster than previously thought in the third quarter | CNN Business

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    New York
    CNN
     — 

    America’s economy grew much faster than previously thought in the third quarter, a sign that the Federal Reserve’s battle to cool the economy to fight inflation t is having only limited impact.

    The Commerce Department’s final reading Thursday morning showed gross domestic product, the broadest measure of the US economy, grew at an annual pace of 3.2% between July and September. That was above the 2.9% estimate from a month ago. Economists surveyed by Refinitiv had expected GDP to stay unchanged from its previous reading.

    The report said the stronger-than-expected reading was due to increases in exports and consumer spending that were partly offset by a decrease in spending on new housing. Consumer spending is responsible for more than two-thirds of the nation’s economic activity.

    The Fed has been raising interest rates throughout the year to cool demand for goods and services and reduce inflation. Economists have been worried for quite some time that the Fed’s actions could tip the US economy into recession next year.

    Inflation has cooled in recent readings, but the US economy has stayed strong. Some surveys released this week suggest the Fed’s higher rates are not slowing spending by businesses or consumers.

    A recent survey of chief financial officers found the current level of interest rates have not impacted their spending plans. And consumer confidence improved in December according to a survey by the Conference Board, reaching the highest level since April.

    In addition, employers have continued to hire at a historically strong pace, although layoffs have increased in some industries, especially technology.

    A separate Labor Department report Thursday showed that unemployment claims remained relatively unchanged.

    Initial weekly claims for unemployment insurance benefits ticked up to 216,000 for the week ended, December 17. The previous week’s total was upwardly revised by 3,000 to 214,000.

    Economists were expecting initial claims to land at 222,000, according to Refinitiv.

    The weekly initial claims totals are hovering around pre-pandemic levels. In 2019, weekly claims averaged 218,000.

    Continuing claims, which include people who are collecting benefits on an ongoing basis, dropped slightly to 1.672 million for the week ended December 10. The prior week’s number of continuing claims were revised up to 1.678 million.

    The final GDP report is one of most backward-looking readings the government releases, looking at the state of the economy nearly three months ago. The current forecast from economists is that growth in the current period will be only 2.4%, significantly slower than Thursday’s reading.

    Still, Wall Street was concerned that the GDP report could give the Fed more runway to raise rates. Stocks fell modestly Thursday. Dow futures were 200 points, or 0.6% lower. S&P 500 futures fell 0.8%.

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  • Housing slump likely to continue but some see hopeful signs ahead | CNN Business

    Housing slump likely to continue but some see hopeful signs ahead | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.


    New York
    CNN
     — 

    Mortgage rates have ticked down recently, but are still up dramatically from a year ago thanks to the surge in long-term bond yields as the Federal Reserve hiked interest rates.

    While that’s already had a negative impact on the housing market, we’ll get more details this week about how much worse the damage has become.

    A long list of housing data is on tap. On Tuesday the US Census Bureau will report housing starts and building permits figures for November, followed by Friday’s release of new home sales data for the same month. In between that will be the November existing home sales numbers from the National Association of Realtors on Wednesday, as well as weekly data on mortgage rates and applications on Thursday.

    For the past few months, existing and new home sales have been steadily declining because of the spike in rates and the fact that home prices remain stubbornly high for first-time buyers. Housing starts and building permits have been choppier on a month-to-month basis, but those figures are both down from a year ago.

    Still, there are some promising signs that the worst could soon be over. Shares of Lennar

    (LEN)    , one of the largest homebuilders in the US, rallied after reporting earnings last week. Revenue topped forecasts and the company’s guidance for the number of homes it expected to deliver next year was a little higher than analysts’ estimates as well.

    Lennar investors “may be looking ahead to 2023, perhaps crossing the valley from recession to potential recovery,” according to CFRA Research analyst Kenneth Leon.

    Others in the industry are cautiously optimistic as well.

    According to data from Amherst Group, an investment firm that buys single-family homes to rent out, it’s important to put the recent slide in prices in context.

    Amherst said home prices are still up about 40% from pre-pandemic levels. So even a further drop of about 15% would merely bring them to mid-2021 levels. In other words, this isn’t like the mid-2000s real estate bubble bursting.

    It’s also worth noting that the job market is still strong and wages are growing. What’s more, many consumers still have decent levels of excess savings thanks to pandemic era government stimulus.

    That all amounts to a few good reasons why the housing market could avoid a severe and prolonged slump.

    “The U.S. housing market is still supported by a tight labor market, the lock-in effect of low fixed mortgage rates for existing homeowners, tight mortgage underwriting, low leverage in the mortgage sector, and low housing supply,” said Brandywine fixed-income analyst Tracy Chen in a report this month.

    “We believe we can avoid a severe housing downturn like the one in the Global Financial Crisis,” Chen added.

    Others point out that even though housing sales may remain weak due to high home prices and still elevated mortgage rates, the good news is that most existing homeowners are still paying their monthly mortgage on time.

    Again, that’s a stark contrast from 2008 when many people with subprime loans or borrowers with poor credit histories were unable to keep up with their mortgage payments.

    “Housing is not bringing down the economy. Yes, the housing market has been impacted. But mortgage delinquencies are still low,” said Gene Goldman, chief investment officer at Cetera Investment Management.

    There aren’t a ton of companies reporting their latest earnings this week. But the few that are could give more clues about the financial health of consumers and the state of corporate spending.

    Cereal giant General Mills

    (GIS)     will release earnings on Tuesday. Analysts are expecting a slight increase in both sales and profit. Consumers may be growing increasingly wary about inflation and the broader economy, but they’re still eating their Wheaties. Shares of General Mills

    (GIS)     have soared nearly 30% this year.

    Analysts are less optimistic about the outlooks for sneaker king and Dow component Nike

    (NKE)    , used car retailer CarMax

    (KMX)     and memory chip maker Micron

    (MU)    , whose semiconductors are used in devices ranging from cell phones and computers to cars.

    Earnings are expected to decline for these three companies. They won’t be the only leaders of Corporate America to report weak results.

    According to data from FactSet, fourth-quarter earnings for S&P 500 companies are expected to decline 2.8% from a year ago. Analysts have been busy cutting their forecasts too. John Butters, senior earnings analyst at FactSet, noted in a report that fourth-quarter profits were expected to rise 3.7% as recently as September 30.

    Investors are also going to be paying very close attention to what companies say in their earnings reports about their outlooks for 2023. Analysts currently are anticipating earnings growth of 5.3% for 2023. That could be too optimistic… especially if companies start cutting their own forecasts due to worries about the broader economy.

    “Odds of a recession are pretty high,” said Vincent Reinhart, chief economist and macro strategist at Dreyfus & Mellon. “That will have a knock-on effect for corporate earnings. Higher rates and weaker earnings suggest more pain for stocks.”

    Monday: Germany Ifo business climate index

    Tuesday: US housing starts and building permits; China sets loan prime rate; Bank of Japan interest rate decision; earnings from General Mills, Nike, FedEx

    (FDX)     and Blackberry

    (BB)

    Wednesday: US existing home sales; Germany consumer confidence; earnings from Rite Aid

    (RAD)    , Carnival

    (CCL)    , Cintas

    (CTAS)    , Toro

    (TTC)     and Micron

    Thursday: US weekly jobless claims; US Q3 GDP (third estimate); earnings from CarMax

    (KMX)     and Paychex

    Friday: US personal income and spending; US PCE inflation; US new home sales; US durable goods orders; US U. of Michigan consumer sentiment; Japan inflation; UK markets close early

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  • Why recession fears are back: Americans are losing faith | CNN Business

    Why recession fears are back: Americans are losing faith | CNN Business

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    New York
    CNN
     — 

    From the executive suite to the grocery aisles to the halls of the Federal Reserve, the big question is: Can red-hot inflation be vanquished without tipping the economy into a recession?

    Ironically, all this talking about a recession can actually help cause one. How people feel is a huge driver of consumer behavior and business planning. The famous British economist John Maynard Keynes coined the phrase “animal spirits” to describe what drives investors, consumers and business leaders. Fear, hope, uncertainty, and confidence are all hard to measure — and hugely important to how the economy fares.

    Essentially, worrying about a recession and planning for one can be a self-fulfilling prophecy.

    “At the end of the day, a recession is a loss of faith,” said Mark Zandi, chief economist at Moody’s Analytics. Consumers worry about losing a job and so pull back on spending, and business leaders worry their sales will decline and start laying off workers.

    “You get into this kind of self-reinforcing negative cycle,” he told CNN’s Early Start. “So when sentiment is this bad and starting to feed on itself, we run the risk of talking ourselves into one.”

    The US economy grew at a 2.9% annual rate in the third quarter, and the unemployment rate is near a 50-year low. That’s not going to last. The Federal Reserve this week lowered its forecast for growth in the United States next year to just 0.5% and a jobless rate rising to 4.6% by the end of 2023.

    “Look, we’re planning as if there’s going to be a mild recession next year,” United Airlines CEO Scott Kirby told CNN This Morning. “And a lot of people in the business world are trying to talk ourselves into one is what it sometimes feels like to me.”

    But he added, “If I didn’t watch business shows or read the Wall Street Journal, the word recession wouldn’t be in my vocabulary because we just don’t see it in our data.”

    Federal Reserve Chairman Jerome Powell and plenty of economists — including Treasury Secretary Janet Yellen — still see a path to a so-called soft landing, where the economy slows enough to lower inflation but not cause a recession. Yellen explained this week that recession risks permanently exist.

    “There are always risks of a recession,” Yellen told CBS’s “60 Minutes” in an interview that aired on Sunday. “The economy remains prone to shocks.”

    But Zandi said there can be a bright side to the dark worries.

    “It may just, in an odd kind of way, help things out because if everyone’s so nervous about recession, they are cautious,” he said. “They don’t take big risks. They don’t take on a lot of debt. They don’t go out and make big expansion moves (and) that may cool things off sufficiently to bring inflation down so that (the Fed) doesn’t have to raise rates as much and we actually — weirdly enough — avoid a recession.”

    JPMorgan Chase CEO Jamie Dimon has expressed concern for months about an impending recession, citing higher interest rates and consumers spending down their excess pandemic savings.

    “When you’re looking out forward, those things may very well derail the economy and cause this milder or hard recession that people are worried about,” he said earlier this month.

    With inflation still at the highest level in a generation and central banks around the world continuing to raise interest rates, the risks for 2023 are undoubtedly high.

    “I think it’s reasonable to be nervous and cautious about the economy next year,” Zandi acknowledged.

    “But you know, having said that, I think we have a fighting chance of getting through the next year without an economic downturn.” He cites inflation “coming in here pretty quickly, consumers still have cash and middle- and high-income consumers are spending and businesses are reluctant to lay off workers because their number one problem is finding and retaining workers.”

    He forecasts “just a moderate, steady slowing (in the job market) and economic activity as we move into next year. Hopefully we don’t lose faith and run for the bunker and go into recession.”

    — CNN’s Elizabeth Yang contributed to this report.

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  • The Grinch comes for retailers | CNN Business

    The Grinch comes for retailers | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    Weaker-than-expected retail sales in November pummeled market sentiment on Thursday and raised the odds that the Federal Reserve’s inflation-fighting interest rate hikes would push the economy into recession.

    What’s happening: US retail sales, which measure the total amount of money that stores make from selling goods to customers, fell 0.6% in November, the weakest performance in nearly a year. The drop concerned economists who had expected monthly sales to shrink by just 0.1%. It’s also a sharp reversal from October’s sales increase of 1.3%.

    That’s a bad sign for the economy. Just last month Bank of America CEO Brian Moynihan told CNN that the continued strength of the US consumer is nearly single-handedly staving off recession. Consumer spending is a major driver of the economy, and the last two months of the year can account for about 20% of total retail sales — even more for some retailers, according to National Retail Federation data.

    Market mania: The weak report means that spending faltered just as the holiday season started, a critical time for retailers to ramp up profits and get rid of excess inventory. Investors weren’t too happy about that.

    Shares of Costco

    (COST)     closed Thursday 4.1% lower, Target

    (CBDY)     fell by 3.2%, Macy’s

    (M)     dropped 3.5% and Abercrombie & Fitch

    (ANF)     was down 6.2%.

    The entire sector took a blow — the VanEck Retail ETF, with Amazon

    (AMZN)    , Home Depot

    (HD)     and Walmart

    (WMT)    as its top three holdings, fell by 2.2%. The SPDR S&P Retail ETF, which follows all S&P retail stocks, was down 2.9%.

    Weak sales are likely to continue, say analysts, and if they do, then retailers’ bottom lines and fourth-quarter earnings will suffer.

    “The headwinds of the past year are catching up to consumers and forcing them to be more conservative in their holiday shopping this winter,” warned Morgan Stanley economist Ellen Zentner in a note.

    The Fed factor: November’s report could indicate that consumers are feeling the double-punch of sky-high inflation and painful interest rate hikes from the central bank. This retail sales data adds to recessionary concerns, as it suggests that consumers may be becoming more cautious with their spending.

    “Households are increasingly relying on their savings to sustain their spending, and many families are resorting to credit to offset the burden of high prices. These trends are unsustainable, and the current credit splurge is a true risk, especially for families at the lower end of the income spectrum,” said Gregory Daco and Lydia Boussour, economists at EY Parthenon.

    While American bank accounts are still fairly robust, they’re beginning to dwindle. In the third quarter of 2022, credit card balances jumped 15% year over year. That’s the largest annual jump since the New York Fed began keeping track of the data in 2004.

    “Against this backdrop, we expect consumers will rein in their spending further in coming months,” said Daco and Boussour. “Real consumer spending should see modest growth in the final quarter of the year, but we expect it will barely grow in 2023.”

    Bottom line: If Bank of America’s Moynihan was right, the US economy is in trouble.

    US mortgage rates came in lower once again this week, marking the fifth consecutive drop in a row.

    The 30-year fixed-rate mortgage averaged 6.31% in the week ending December 15, down from 6.33% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.12%, reports my colleague Anna Bahney.

    That’s a sharp reversal from the upward trend in rates we’ve seen for most of 2022. Those increases were spurred by the Federal Reserve’s unprecedented campaign of harsh interest rate hikes to tame soaring inflation. But mortgage rates have tumbled in the last several weeks, following data that showed inflation may have finally reached its peak.

    The Fed announced on Wednesday that it will continue to raise interest rates — albeit by a smaller amount than it has been.

    “Mortgage rates continued their downward trajectory this week, as softer inflation data and a modest shift in the Federal Reserve’s monetary policy reverberated through the economy,” said Sam Khater, Freddie Mac’s chief economist.

    “The good news for the housing market is that recent declines in rates have led to a stabilization in purchase demand,” he added. “The bad news is that demand remains very weak in the face of affordability hurdles that are still quite high.”

    American regulators have been granted unprecedented access to the full audits of Chinese companies like Alibaba

    (BABA)     and JD.com

    (JD)     after threatening to kick the tech giants off US stock exchanges if they did not receive the data.

    The announcement marks a major breakthrough in a yearslong standoff over how Chinese companies listed on Wall Street should be regulated. It will come as a huge relief for these firms and investors who have invested billions of dollars in them, reports my colleague Laura He.

    “For the first time in history, we are able to perform full and thorough inspections and investigations to root out potential problems and hold firms accountable to fix them,” Erica Williams, chair of the Public Company Accounting Oversight Board, said in a statement Thursday, adding that such access was “historic and unprecedented.”

    More than 100 Chinese companies had been identified by the US securities regulator as facing delisting in 2024 if they did not hand over the audits of their financial statements.

    On Friday, China’s securities regulator said it’s looking forward to working with US officials to continue promoting future audit supervision of companies listed in the United States.

    There are more than 260 Chinese companies listed on US stock exchanges, with a combined market capitalization of more than $770 billion, according to recent calculations posted by the US-China Economic and Security Review Commission.

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  • The Fed lifts rates by half a point, acknowledging that inflation is easing | CNN Business

    The Fed lifts rates by half a point, acknowledging that inflation is easing | CNN Business

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    Washington, DC
    CNN
     — 

    The Federal Reserve approved a half-point interest rate hike on Wednesday, a smaller increase than in recent months and an acknowledgment that inflation is finally easing.

    The increase marks a shift for the central bank after an unprecedented year that includes seven-straight rate hikes as part of an aggressive campaign to try and bring down the highest inflation since the early 1980s.

    While lower than the four consecutive three-quarter-point hikes approved at the Fed’s previous meetings, Wednesday’s rate hike is still twice the size of the central bank’s customary quarter-point increase and will likely deepen the economic pain for millions of American businesses and households by pushing up the cost of borrowing even further.

    Fed officials will increase the rate that banks charge each other for overnight borrowing to a range of 4.25-4.5%, the highest since 2007.

    The Fed also released its highly anticipated Summary of Economic Projections, which includes what is colloquially known as the dot plot. Investors pay close attention to these forecasts, which show where each of its 19 leaders expect interest rates to go in the future, for clues about the path of rate hikes in the new year and beyond.

    The December projections showed a more aggressive monetary policy tightening path, with the median “dot” rising to a new peak in federal fund rates of 5-5.25% up from 4.5-4.75% in September. That would mean Fed officials expect to raise rates by half a percent more than they did three months ago, when the plot was last released.

    Policymakers also projected that PCE inflation, the Fed’s favored price gauge, would remain above its 2% target until at least 2025. Further projections showed souring expectations for the health of the US economy, with Fed officials now predicting that unemployment will rise to 4.6% by the end of 2023 and remain at that level through 2024. That’s 0.2 percentage points higher than the 4.4% rate they were expecting in September and significantly higher than the current 3.7% rate.

    GDP, a measure of economic output, is also projected to drop to 0.5% next year, down from 1.2% in September.

    The forecast will likely stoke investors’ and economists’ fear that the US economy will endure a recession next year. Federal Reserve Chair Jerome Powell said last month that there is still a chance the economy can avoid recession but said the odds are slim.

    “To the extent we need to keep rates higher longer, that’s going to narrow the path to a soft landing,” he said at an economic forum last month.

    Still, the economy has so far withstood the hikes. The job market is healthy, wages are growing, Americans are spending and GDP is strong. Business is also good: Companies are largely beating revenue expectations and reporting positive earnings results.

    Fed Chair Powell is schedule to hold a post-meeting press conference at 2:30 p.m. Wednesday.

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  • What to expect from this week’s Fed meeting | CNN Business

    What to expect from this week’s Fed meeting | CNN Business

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    New York
    CNN
     — 

    The Federal Reserve is expected to raise interest rates by half a point at the conclusion of its two-day policy meeting on Wednesday, an indication that the central bank is pulling back on its aggressive stance as signs begin to emerge that inflation may be easing.

    Although that increase would be smaller than the three-quarter-point hikes announced at the past four Fed meetings, it’s nothing to scoff at.

    It’s still double the Fed’s customary quarter-point hike, and a sizable increase that will likely cause economic pain for millions of American businesses and households by pushing up the cost of borrowing for homes, cars and other loans.

    The Fed’s anticipated action would increase the rate that banks charge each other for overnight borrowing to a range of between 4.25% and 4.5%, the highest since 2007.

    Federal Reserve Chairman Jerome Powell confirmed last month that smaller rate hikes could be expected, saying: “The time for moderating the pace of rate increases may come as soon as the December meeting.”

    But while inflation is unlikely to slow dramatically any time soon, partly due to continued pressure on wages amid a shortage of workers, Wall Street appears to believe the Fed will eventually be forced to pivot away from, or even reverse its regimen of rate hikes. Traders are largely pricing in rate cuts in the second half of 2023.

    The Fed will conclude its rate hike regimen by the second quarter of next year, predicted JPMorgan analysts in a recent note. “With inflation continuing to fade and fiscal policy likely on hold, the Fed is likely to end its tightening cycle early in the new year and inflation could begin to ease before the end of 2023,” they wrote. The analysts expect two quarter-point hikes in the first half of 2023.

    But the average period between peak interest rates and the first reductions by the Fed is 11 months, which could mean that even if the central bank stops actively hiking rates, they could remain elevated into 2024.

    Investors will closely read the Fed’s economic outlook, the Summary of Economic Projections, which is also due out Wednesday. And they will watch Powell’s press conferences for clues about what’s to come — though they may end up sorely disappointed.

    ​”We expect Fed Chair Powell will insist on the need to hold policy at a restrictive level for some time to bring inflation down toward the 2% target,” wrote Gregory Daco, chief economist at EY-Parthenon, in a note to clients Monday. “This will serve to push back against current market pricing … Powell will stress that history cautions strongly against prematurely loosening policy.”

    The Fed has increased its benchmark lending rate six times this year in an attempt to discourage borrowing, cool the economy and bring down historically high inflation that peaked at 9.1% over the summer.

    Even if interest rate hikes do ease off, they will remain high, and economists are largely expecting that the US economy will endure a recession next year. Powell said in November that there is still a chance the economy avoids recession but the odds are slim, noting: “To the extent we need to keep rates higher longer, that’s going to narrow the path to a soft landing.”

    In an interview that aired on CBS on Sunday, Treasury Secretary Janet Yellen — Powell’s predecessor at the Fed — said there is “a risk of a recession. But it certainly isn’t, in my view, something that is necessary to bring inflation down.”

    And the economy has so far withstood the Fed’s aggressive rate hikes. The job market is healthy, wages are growing, Americans are spending and GDP is strong. Business is also good: Companies are largely beating revenue expectations and reporting positive earnings results.

    The Fed isn’t acting alone, it’s just one of nine central banks expected to make a rate announcement this week. Landing softly on the ever-narrowing path between high inflation and recession is a global concern as central banks across the world contend with similar economic problems.

    The European Central Bank, the Bank of England and the Swiss National Bank are expected to follow the United States with half-point moves of their own on Thursday. Norway, Mexico, Taiwan, Colombia and the Philippines will also likely increase their borrowing costs this week.

    The Federal Reserve announces its rate hike decision Wednesday at 2 p.m., followed by a press conference with Chair Powell at 2:30 p.m.

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  • The Fed will raise rates again. But it’s playing with fire | CNN Business

    The Fed will raise rates again. But it’s playing with fire | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.


    New York
    CNN
     — 

    The Federal Reserve is all but guaranteed to announce Wednesday that it will once again raise interest rates. But investors are hopeful it will be a smaller increase than the last four hikes.

    Traders are betting on just a half-point increase. Federal funds futures on the Chicago Mercantile Exchange show an 80% probability of a half-point hike.

    The Fed bumped up rates by three-quarters of a percentage point in the past four meetings (June, July, September and November). That followed two smaller rate hikes earlier this year. The central bank’s key short-term interest rate, which sat at zero at the beginning of the year, is now at a range of 3.75% to 4%.

    The hope is that inflation pressures are finally starting to abate enough that the Fed can pivot — Fed-speak for a series of smaller rate hikes -— to avoid crashing the economy into a recession.

    But it may not be that simple. The government reported Friday that a key measure of wholesale prices, the Producer Price Index, rose 7.4% over the past 12 months through November. That was a bit higher than the expected rate of 7.2% but a marked slowdown from the 8% increase through October.

    The more widely watched Consumer Price Index data for November comes out Tuesday, just a day before the Fed announcement. CPI rose 7.7% year-over-year through October.

    As long as inflation remains a problem, the Fed is going to have to tread cautiously.

    “Inflation has probably peaked but it may not come down as quickly as people want it to,” said Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research.

    Jones still thinks the Fed will raise rates by only half a point this week and may look to hike them just a quarter point in early 2023. But she conceded that the Fed is now sort of “making it up as they go along.”

    The other problem: The Fed’s rate hikes this year have had limited impact on the economy so far. Yes, mortgage rates have spiked and that has severely hurt demand for housing, but the job market remains strong. Wages are growing, and consumers are still spending. That can’t last indefinitely.

    “The cumulative impact of higher rates are just beginning. Hence, the Fed has to step down its pace a bit,” Jones said.

    So investors are going to need to pay attention not to just what the Fed says in its policy statement about rates and what Powell talks about in his press conference. The Fed also will release its latest projections for gross domestic product growth, the job market and consumer prices Wednesday.

    In September, the Fed’s consensus forecasts called for GDP growth of 1.2% in 2023, an unemployment rate of 4.4% and an increase in personal consumption expenditures, the Fed’s preferred measure or inflation, of 2.8%. It seems likely that the Fed will cut its GDP target and raise its expectations for the jobless rate and consumer prices.

    The likelihood of an economic downturn is increasing, and the Fed’s projections may reflect that. But the Fed is not expected to start cutting interest rates until 2024 at the earliest, so it may be too late for the central bank to prevent a recession.

    “A pivot or pause is not a cure-all for this market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. “Rate cuts may be too late. Recession risks are still relatively high.”

    The US economy isn’t in a recession yet. But are American shoppers tapped out? We’ll get a better sense of that Thursday after the government reports retail sales figures for November.

    Economists are actually forecasting a small dip of 0.1% in retail sales from October. But it’s important to put that number in context. Retail sales surged 1.3% from September and 8.3% over the past 12 months.

    So it’s possible consumers were simply getting a head start on holiday shopping. Inflation has an effect on the numbers too, since retail sales have been impacted (positively) by the fact that people have to spend more money for stuff.

    One market strategist also pointed out that as long as price increases continue to slow, consumers will feel more confident as well.

    “Everybody has been talking about inflation this year. Going forward, it will be more about disinflation in 2023 or 2024,” said Arnaud Cosserat, CEO of Comgest Global Investors.

    What does that mean for investors? Cosserat said people should be looking for quality consumer companies that still have pricing power and can maintain their profit margins. Two stocks that his firm owns that he said fit that bill: Luxury goods maker Hermes

    (HESAF)     and cosmetics giant L’Oreal

    (LRLCF)    .

    Monday: UK monthly GDP; earnings from Oracle

    (ORCL)

    Tuesday: US Consumer Price Index; Germany economic sentiment

    Wednesday: Fed meeting; EU industrial production; UK inflation; earnings from Lennar

    (LEN)     and Trip.com

    (TCOM)

    Thursday: US retail sales; US weekly jobless claims; ECB and Bank of England rate decisions; earnings from Jabil

    (JBL)

    Friday: Eurozone PMI; UK retail sales; earnings from Accenture

    (ACN)    , Darden Restaurants

    (DRI)     and Winnebago

    (WGO)

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  • Key inflation measure shows price pressures cooled off in November, but remain high | CNN Business

    Key inflation measure shows price pressures cooled off in November, but remain high | CNN Business

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    New York
    CNN
     — 

    Another key inflation measure shows price pressures cooled off but remained stubbornly high in November, despite the Federal Reserve’s monthslong efforts to fight inflation through higher interest rates.

    The Producer Price Index, which measures prices paid for goods and services by businesses before they reach consumers, rose 7.4% in November compared to a year earlier, the Bureau of Labor Statistics reported Friday. That’s down from the revised 8.1% gain reported for October.

    US stocks fell immediately after the report, as economists surveyed by Refinitiv had expected wholesales prices to have risen just 7.2%, annually. The higher-than-expected inflation readings raised concerns about whether the Fed will be able to slow the pace of rate hikes.

    But futures for the Fed funds rate still show a strong likelihood of a half-point increase at the central bank’s policymaking meeting next week, rather than the three-quarter point hike instituted at the last four meetings.

    “Overall inflation is moving in the right direction, though at a slow pace,” said Kurt Rankin, senior economist at PNC. “The Federal Reserve’s tightening plans will remain aggressive until clear, consistent signs of inflation’s demise have been demonstrated.”

    The PPI report generally gets less attention that the corresponding Consumer Price Index, which measures prices paid by US consumers for goods and services. But this is a rare month in which the PPI report came out before the CPI report, which is due out Tuesday.

    That and the Fed meeting scheduled for Tuesday and Wednesday next week is making this inflation report of particular importance to investors.

    “Next Tuesday’s CPI release will be more important than today’s data, but with traders on edge, any indication that prices remain elevated and that inflation is more sticky than currently believed is a negative for markets,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.

    Overall prices rose a seasonally adjusted 0.3% compared to October — the same monthly increase as was reported in both September and October — but were slightly higher than the 0.2% rise forecast by economists.

    Stripping out volatile food and energy prices, core PPI rose 6.2% for the year ending in November, down from the revised 6.8% increase the previous month. Economists had forecast only a 5.9% increase.

    Core PPI posted a 0.4% increase from October, a far bigger rise than the revised 0.1% month-over-month rise in that previous month, and twice as big as the 0.2% rise forecast by economists.

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  • Why we think we’re in a recession when the data says otherwise | CNN Business

    Why we think we’re in a recession when the data says otherwise | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN Business
     — 

    It seems like you can’t go anywhere these days without colliding headfirst into another ominous prediction of imminent recession. CEOs, portfolio managers, politicians, news pundits, second cousins and even Cardi B are sounding the alarm: Hear ye! Hear ye! Economic downturn awaits all who dare enter 2023!

    But those predictions contradict the slew of positive economic data we’ve seen: The job market is healthy, wages are growing, Americans are spending and GDP is strong. Business is also good: Companies are largely beating revenue expectations and reporting positive earnings results.

    The Federal Reserve’s regimen of painful interest rate hikes meant to tame persistent inflation could certainly cool the economy — as could events in Eastern Europe and China — but the economy has been able to successfully endure nearly a year of hikes and war in Ukraine with barely a dent.

    It’s possible that recession chatter is just that. Chatter.

    What’s happening: No one would ever accuse investors of shying away from their emotions: Passions run high on trading floors where feelings are often as valid as facts and fear and greed can sometimes run the show. Economists, on the other hand, are a data-dependent, stoic bunch. The US economy is not Wall Street, and market downturns are not recessions — but sometimes they get jumbled together in the public eye and their borders become hazy.

    That appears to be the case: The Fed’s attempts to tamp down sky-high inflation are having an outsized impact on markets — the S&P 500 is down about 18% so far this year — but there has so far been little impact on the US economy as a whole.

    This week, a number of top executives warned of an economic slowdown in 2023. CEOs from Goldman Sachs, JPMorgan, General Motors, Walmart, United and Union Pacific all said they were making plans for less-profitable times ahead. But hidden behind those “CEO PREDICTS RECESSION” headlines lies a lot of uncertainty.

    Rising interest rates and geopolitical chaos are pointing towards storm clouds on the horizon, JPMorgan CEO Jamie Dimon told CNBC on Tuesday: “When you look out forward, those things may well derail the economy and cause this mild-to-hard recession that people are worried about.” When pressed to predict what was coming, he deflected. “It could be a hurricane. We simply don’t know,” he said. What was left unsaid was that sunny days are also a possibility.

    Feedback loop: United Airlines CEO Scott Kirby also told CNBC on Tuesday that “we’re probably going to have a mild recession induced by the Fed.” He then went on to say that demand in his industry is higher than ever and United entered the fourth quarter with profit margins near all-time highs. He doesn’t see any indication of a slowdown on the horizon, either.

    So why does he think a recession is coming? “If I didn’t watch CNBC in the morning, the word ‘recession’ wouldn’t be in my vocabulary,” he said. “You just can’t see it in our data.”

    It’s almost as though Kirby predicted recession was imminent because other prominent voices predicted that recession was imminent. And it’s possible that we’re all stuck in a feedback loop that amplifies unjustified fear.

    Prophecies are often self-fulfilling. If CEOs believe recession is coming, they preemptively batten down the hatches — and that means less spending and more layoffs, which in turn can trigger an economic downturn.

    Goldman CEO David Solomon said Tuesday that the bank may soon terminate staff and exercise caution with its financial resources due to the mounting economic uncertainty. Morgan Stanley will reportedly slash its workforce by about 1,600 people, roughly 2% of the total.

    The upside: Some parts of Wall Street seem to be avoiding the recession fervor. ​​A recent study by Goldman Sachs found that smart money is betting on a soft landing. Money managers have been favoring industrial and commodity stocks that are sensitive to economic downturns. Stocks that act as a buffer during economic downturns like consumer staples and utilities have fallen out of favor at investment funds with assets totaling almost $5 trillion, Goldman strategists found.

    “Current sector tilts are consistent with positioning for a soft landing,” they wrote.

    Oil prices have tumbled to their lowest level since Christmas as worries about the health of the economy weigh on crude, overshadowing concerns about new restrictions imposed on Russian energy, reports my colleague Matt Egan.

    Brent crude, the world benchmark, lost nearly 3% on Thursday to around $77.45 a barrel.

    The oil selloff comes after the West hit Russia with new restrictions that, so far at least, do not appear to be derailing global energy markets.

    The European Union on Monday imposed a ban on seaborne oil imports from Russia, while the West placed a $60 cap on Russian oil. Both moves are designed to hurt Russia’s ability to finance its war in Ukraine, without hurting consumers by causing Moscow to slash oil production.

    “Russia oil is still on the market. As of now, it appears Russia is willing to play ball,” said Robert Yawger, vice president of oil futures at Mizuho Securities.

    The tame reaction from energy markets is a welcome gift for Americans heading on long drives this holiday season, as prices at the gas pump are expected to continue their recent plunge.

    US oil this week hit its lowest level since December 23, 2021, before recovering a little on Thursday to trade up 2% at $73.60 a barrel. That leaves oil down by 43% since briefly topping $130 a barrel in March amid fears about Russia’s invasion of Ukraine.

    The national average price for regular gasoline dipped by three cents to $3.33 a gallon on Thursday, according to AAA. Gas prices have dropped 14 cents in the past week and 47 cents in a month. The national average is a cent lower than a year ago when they averaged $3.34 a gallon.

    Britain is bracing for further disruption from strikes heading into the Christmas period, as ambulance drivers and nurses join rail operators and postal workers in the worst wave of walkouts the country has endured for at least a decade, reports my colleague Hanna Ziady.

    More than 20,000 ambulance workers, including paramedics and call handlers, are expected to strike on December 21 in a dispute over pay, according to statements from labor unions GMB, Unison and Unite.

    The strike will involve just under half of all ambulance drivers in England, Wales and Northern Ireland, although unions have said they will cover life-threatening emergencies during the walkouts. More than 10,000 ambulance workers represented by the GMB Union will strike again on December 28.

    Strikes have swept the United Kingdom this year, as workers grapple with a cost-of-living crisis and stagnating wages. Consumer prices rose by 11.1% in the year to October, a 41-year high. Once inflation is taken into account, average wages fell by the biggest drop on record earlier this year, and were still declining in the June-September period.

    According to The Times newspaper, one million UK workers are set to strike in December and January. Data from the Office for National Statistics shows Britain has already lost at least 741,000 days to strike action this year, putting it on track for its worst year of labor disputes in at least a decade.

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  • The Fed offers more clues about rate hikes | CNN Business

    The Fed offers more clues about rate hikes | CNN Business

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    New York
    CNN Business
     — 

    Americans are getting ready for food, family and football on Thursday, but investors were still holding off until Wednesday afternoon before starting to give thanks.

    That’s because the Federal Reserve released the minutes from its latest meeting at 2pm ET Wednesday, which provided more clues about the central bank’s thinking on inflation and interest rate hikes.

    At its November 2 meeting the Fed raised rates by three-quarters of a percentage point — its fourth straight hike of such a large magnitude. But Fed chair Jerome Powell suggested at a press conference that the Fed may soon begin to slow the pace of hikes.

    The minutes from that meeting showed that several other Fed policymakers agreed with Powell’s assessment.

    “A number of participants observed that, as monetary policy approached a stance that was sufficiently restrictive to achieve the Committee’s goals, it would become appropriate to slow the pace of increase in the target range for the federal funds rate,” the Fed said in the minutes.

    The Fed added that “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate.”

    Stocks, which were relatively flat and meandering before the minutes came out, popped after their release. The Dow ended the day up more than 95 points, or 0.3%. The S&P 500 jumped 0.6% and the Nasdaq rose 1%.

    Other Fed members, most notably vice chair Lael Brainard, had also hinted n recent speeches at a slower pace of hikes. Yet there have been confusing signals from other Fed officials, who have continued to stress that inflation isn’t going away and must be brought under control.

    To that end, the Fed said in the minutes that inflation remains “stubbornly high” and “more persistent than anticipated.”

    With that in mind, traders are now pricing in a more than 75% chance that the Fed will raise rates by only a half-point at its December 14 meeting, according to futures contracts on the CME. That’s up from odds of 52% for a half-point hike a month ago, but lower than an 85% likelihood of a half-point increase that was priced in just last week.

    A recent batch of inflation reports seem to suggest that the pace of runaway price increases is finally starting to slow to more manageable levels. The job market remains relatively healthy as well, although the most recent jobless claims figures ticked up from a week ago.

    But as long as the labor market remains firm and inflation pressures continue to ebb, the Fed will likely pull back on the magnitude of its rate hikes.

    Some experts are growing concerned that if the Fed goes too far with rates, the increases could eventually slow the economy too much and potentially lead to much higher unemployment, job losses and even a recession.

    The Fed’s rate hikes have had a clear impact on the housing market, with surging mortgage rates helping to put a dent into home sales.

    Still, Wall Street is growing more confident that the Fed might be able to pull off a so-called soft landing. The Dow soared 14% in October, its best month since January 1976. The Dow is up another 4.5% in November and is now only down 6% this year.

    The S&P 500 and Nasdaq also have rebounded significantly since October, but both of those broader market indexes remain down more sharply for the year than the Dow.

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  • Consumers continue to lack confidence in the US economy ahead of holiday shopping season | CNN Business

    Consumers continue to lack confidence in the US economy ahead of holiday shopping season | CNN Business

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    Minneapolis
    CNN Business
     — 

    Heading into the all-important holiday shopping season, American consumers still aren’t feeling very confident about the state of the US economy.

    The University of Michigan’s consumer sentiment index landed at 56.8 in November, up from the preliminary reading of 54.7 measured earlier this month but lower than the 59.9 recorded in October.

    Economists were expecting a reading of 55, according to consensus estimates on Refinitiv.

    The month-over-month decline in sentiment offset about one-third of the gains made since the index bottomed out in June, according to Joanne Hsu, director of the university’s Surveys of Consumers.

    “Headwinds to consumer strength have started to emerge. Strong incomes have thus far helped consumers, particularly lower-wage workers, cope with high inflation,” Hsu said in a statement. “However, their perceptions of weakening labor markets could make them pull back their spending in the future. Wealthier households are experiencing declining stock markets and home values, which would also produce drag on their willingness to spend.”

    Consumers surveyed also highlighted the effects of rising interest rates on their desire to buy homes, cars and other big-ticket items. The Federal Reserve, in efforts to combat decades-high inflation, has enacted a series of steep interest rate hikes.

    About 83% of respondents to the University of Michigan’s Surveys of Consumers said that it was a bad time to buy a home. That’s the highest share ever recorded, according to the university.

    The survey also showed that consumers’ inflation expectations for this year and five years out remained relatively unchanged at 4.9% and 3%, respectively. This is a key data point for the Federal Reserve. If consumers believe prices will remain high, that could factor into increased wage demands, which could cause businesses to raise prices.

    Earlier this month, when the preliminary survey data was released, Hsu noted that very few consumers were front-loading purchases to avoid higher interest rates in the future. That was an indication that expectations aren’t worsening, she stated at the time.

    Still, Hsu noted Wednesday, uncertainty over these expectations remains at an elevated level, “indicating that the general stability of these expectations may not necessarily endure.”

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  • Fed officials crushed investors’ hopes this week | CNN Business

    Fed officials crushed investors’ hopes this week | CNN Business

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    New York
    CNN Business
     — 

    Investors sleuthing for clues about what the Federal Reserve will decide during its December policy meeting got quite a few this week. But those hints about the future of monetary policy point to an outcome they won’t be very happy about.

    What’s happening: Federal Reserve officials made a series of speeches this week indicating that aggressive interest rate hikes to fight inflation would continue, souring investors’ hopes for a forthcoming central bank policy shift. On Thursday, St. Louis Federal Reserve President James Bullard said the central bank still has a lot of work to do before it brings inflation under control, sending the S&P 500 down more than 1% in early trading. It later pared losses.

    Bullard, a voting member on the rate-setting Federal Open Market Committee (FOMC), said that the moves the Fed has made so far to fight inflation haven’t been sufficient. “To attain a sufficiently restrictive level, the policy rate will need to be increased further,” he said.

    Those comments come a day after Kansas City Fed President Esther George, a voting member of the FOMC, said to The Wall Street Journal that she’s “looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there.”

    San Francisco Fed President Mary Daly added on Wednesday that a pause in rate hikes was “off the table.”

    A numbers game: Fed officials should increase interest rates to somewhere between 5% and 7% to tamp inflation, Bullard said Thursday. Those numbers shocked investors, as they would require a series of significant and economically painful hikes which increase the chance of a hard landing.

    The current interest rate sits between 3.75% and 4% and the median FOMC participant projected a peak funds rate of 4.5-4.75% in September. If those numbers hold steady, Fed members would only raise rates by another three-quarters of a percentage point.

    But Fed Chair Powell said at the November meeting that the projections are likely to rise in December and if Bullard is correct, that means investors can expect another one to three percentage points in rate hikes.

    Dreams of a pivot: October’s softer-than-expected CPI and producer price reading bolstered investors’ hopes that the Fed might ease its aggressive rate hikes and sent markets soaring to their best day since 2020 last week.

    But messaging from Fed officials this week has brought Wall Street back down to earth.

    That’s because market rallies help to expand the economy, said Liz Ann Sonders, Managing Director and Chief Investment Strategist at Charles Schwab, which is the opposite of what the Fed is trying to do with its tightening policy. Fed officials could be attempting to do some “jawboning” via excessively hawkish speeches in order to bring markets down, she said.

    The bottom line: Investors listen closely to Bullard’s comments because he’s known for having looser lips than other Fed officials, Peter Boockvar, chief investment officer of Bleakley Financial Group, wrote in a note Thursday. But his hawkish predictions may have been “overboard,” especially since he won’t be a voting member of the FOMC next year.

    Still, Wall Street analysts are listening. Goldman Sachs raised its peak fed funds rate forecast on Thursday to 5-5.25%, up from 4.75-5%.

    A series of high-profile layoffs have rattled Big Tech this month.

    Amazon confirmed that layoffs had begun at the company and would continue into next year, just days after multiple outlets reported the e-commerce giant planned to cut around 10,000 employees. Facebook-parent Meta recently announced 11,000 job cuts, the largest in the company’s history. Twitter also announced widespread job cuts after Elon Musk bought the company for $44 billion.

    The series of high-profile layoff announcements prompted fears that the labor market was weakening and that a recession could be around the corner.

    Those fears aren’t unwarranted: The Federal Reserve is actively working to slow economic growth and tighten financial conditions to rebalance the white-hot labor market. Further layoffs in both tech and other industries are likely inevitable as the Fed continues to raise interest rates.

    But this wave of layoffs isn’t as significant as headlines might lead Americans to believe. Thursday’s weekly jobless claims actually fell by 4,000 to 222,000 in spite of the surge in tech job cuts.

    In a note on Thursday Goldman Sachs analysts outlined three reasons why the layoffs may not point to a looming recession in the US.

    First off, the tech industry accounts for a small share of aggregate employment in the US. While information technology companies account for 26% of the S&P 500 market cap, it accounts for less than 0.3% of total employment.

    Second, tech job openings remain well above their pre-pandemic level, so laid-off tech workers should have good chances of finding new jobs.

    Finally, tech worker layoffs have frequently spiked in the past without a corresponding increase in total layoffs and have not historically been a leading indicator of broader labor market deterioration, Goldman analysts found.

    “The main problem in the labor market is still that labor demand is too strong, not too weak,” they concluded.

    Mortgage rates dropped sharply last week following a series of economic reports that indicated inflation may finally be easing, reports my colleague Anna Bahney

    The 30-year fixed-rate mortgage averaged 6.61% in the week ending November 17, down from 7.08% the week before, according to Freddie Mac, the largest weekly drop since 1981.

    But that’s still significantly higher than a year ago when the 30-year fixed rate stood at 3.10%.

    “While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market,” said Sam Khater, Freddie Mac’s chief economist. “Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact.”

    Affording a home remains a challenge for many home buyers. Mortgage rates are expected to remain volatile for the rest of the year. And prices remain elevated in many areas, especially where there is a very limited inventory of available homes for sale.

    Meanwhile, inflation and rising interest rates mean many would-be buyers are also facing tightened budgets.

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  • Yet another key economic report is showing inflation pressures are easing | CNN Business

    Yet another key economic report is showing inflation pressures are easing | CNN Business

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    Minneapolis
    CNN Business
     — 

    A key measure of inflation, wholesale prices, rose by 8% in October from a year before, according to the latest report from the Bureau of Labor Statistics.

    While still historically high, it was the smallest increase since July of last year and significantly better than forecasts. It’s the second inflation report this month to show signs of cooling in the rising prices that have plagued the economy.

    Economists expected the Producer Price Index, which measures prices paid for goods and services before they reach consumers, to show an annual increase of 8.3%, down from September’s revised 8.4%.

    On a monthly basis, producer prices rose 0.2%, below expectations and even with the revised 0.2% increase seen in September.

    Year-over-year, core PPI — which excludes food and energy, components whose pricing is more prone to market volatility — measured 6.7%, down from September’s revised annual increase of 7.1%.

    Month-over-month, core PPI prices were flat, the lowest monthly reading since November 2020. In September, core PPI increased by a revised 0.2% from the month before.

    Economists had expected annual and monthly core PPI to measure 7.2% and 0.3%, respectively, according to estimates on Refinitiv.

    President Joe Biden heralded October’s PPI report Tuesday calling it “more good news for our economy this morning, and more indications that we are starting to see inflation moderate.”

    “Today’s news – that prices paid by businesses moderated last month – comes a week after news that prices paid by consumers have also moderated,” Biden wrote Tuesday. “And, today’s report also showed that food inflation slowed – a welcome sign for family’s grocery bills as we head into the holidays.”

    For much of this year, the Federal Reserve has sought to tamp down decades-high inflation by tightening monetary policy, including issuing an unprecedented four consecutive rate hikes of 75 basis points, or three-quarters of a percentage point.

    The better-than-expected PPI data reflects an economy that has slowed, with supply moving more into balance, said Jeffrey Roach, chief economist for LPL Financial.

    Costs associated with transportation and warehousing, for example, declined for the fourth consecutive month, a likely result of the improved global shipping climate, he said. Producer costs for new cars fell the most since May 2017, he added.

    “Barring geopolitical or financial crises, inflation should continue its deceleration into 2023,” he said in a statement.

    Since PPI captures price changes happening further upstream, the report is considered by some to be a leading indicator for broader inflationary trends and a predictor of what consumers will eventually see at the store level.

    “The PPI read certainly adds more fuel to the fire for those who feel we may finally be on a downward inflation trend,” Mike Loewengart, Morgan Stanley’s head of model portfolio construction, said in a statement.

    Last week’s Consumer Price Index showed inflation slowed to 7.7% from 8.2% year-over-year for consumer goods, surprising investors and giving Wall Street its biggest boost since 2020.

    The CPI data was “reassuring,” Fed vice chair Lael Brainard said on Monday, signaling that the rate hikes appear to be taking hold, and if the economic data continues to show inflation on the decline, then the central bank could scale back the extent of its future rate hikes.

    “When you look at the inflation numbers, there’s some evidence that we’ve peaked, but are we coming down quickly?” Steven Ricchiuto, chief economist for Mizuho Americas told CNN Business.

    Ricchiuto noted that the October figures are only a couple steps lower than what was seen in September.

    “These aren’t the types of things that tell the Fed to stop tightening rates,” he said. However, “they may tell you [that] you don’t need 75 basis points.”

    CNN’s DJ Judd and Matt Egan contributed to this report.

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  • What midterm elections could mean for the US economy | CNN Business

    What midterm elections could mean for the US economy | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN Business
     — 

    Tuesday’s midterm elections come at a time of economic vulnerability for the United States. Recession predictions have largely turned to “when” not “if” and inflation remains stubbornly elevated. Americans are feeling the pain of rising interest rates and are facing a winter filled with geopolitical tension.

    The results of Tuesday’s election will determine the makeup of a Congressional body that holds the potential to enact policies that will fundamentally change the fiscal landscape.

    Here’s a look at what policy issues investors will pay particular attention to as they digest election results.

    Tax changes: Last week, President Joe Biden suggested he may impose a windfall tax on Big Oil companies after they recorded record profits on high gas prices. Republicans would be less likely to approve that windfall tax on oil company profits and also are generally not in favor of tax hikes on the wealthy, reports my colleague Paul R. La Monica.

    “What do midterms mean for the markets? If Republicans get the House, tax hikes are dead in the water,” said David Wagner, a portfolio manager with Aptus Capital Advisors.

    What about tax cuts? If Republicans do take control of Congress, it would be difficult to enact any major tax reductions without some backing from Democrats or President Biden, meaning there could be grandstanding without much action.

    Debt limit: The federal debt ceiling was last lifted in December 2021 and will likely be hit by the Treasury at some point next year. That means it will need to be raised again in order to ensure that America can borrow the money it needs to run its government and ensure the smooth operation of the market for US Treasuries, totaling roughly $24 trillion.

    A fight seems to be brewing between Democrats and Republicans. House Republicans indicate that they may ask for steep spending cuts in exchange for boosting the ceiling.

    If the government ends up divided and brinkmanship continues, there could be bad news for markets. The last time such gridlock occurred, under the Obama administration in 2011, the United States lost its perfect AAA credit rating from Standard & Poor and stocks dropped more than 5%.

    Spending: Democrats have indicated that they intend to focus on parts of the fiscal agenda proposed by President Biden in 2021 that have not yet become law, including expanding health coverage and child care tax credits. A Republican win or gridlock could table that. Goldman Sachs economists also note that a Democratic victory could likely increase the federal fiscal response in the event of recession, while Republicans would be more likely to avoid costly relief packages.

    Social Security: Popular programs like Social Security and Medicare face solvency issues long-term and the topic has become a hot-button issue on both sides of the aisle. The topic is so closely watched that even debating changes could impact consumer confidence, say analysts.

    Democratic Senator Joe Manchin said last week that spending changes must be made to shore up Social Security and other programs which he said were “going bankrupt.” He said at a Fortune CEO conference that he was in favor of bipartisan legislation within the next two years to confront entitlement programs that are facing “tremendous problems.” Republican Senator Rick Scott has proposed subjecting almost all federal spending programs to a renewal vote every five years. Analysts say that could make Social Security and Medicare more vulnerable to cuts.

    The Federal Reserve: Lawmakers have been increasingly speaking out against the pace of the Federal Reserve’s interest rate hikes meant to fight inflation. Democratic Senators Elizabeth Warren, alongside Banking Chair Sherrod Brown, John Hickenlooper and others have called on Fed Chair Jerome Powell to slow the pace of hikes.

    Now, Republicans are getting involved. Senator Pat Toomey, the top Republican on the Banking Committee, asked Powell last week to resist buying government debt if market conditions remain subdued. Expect more scrutiny from both parties after the elections.

    The stock market under President Biden started with a boom, but as we head into midterm elections, markets are going bust, reports my colleague Matt Egan.

    As of Monday, the S&P 500 has fallen by 1.2% since Biden took office in January 2021. That marks the second-worst performance during a president’s first 656 calendar days in office since former President Jimmy Carter, according to CFRA Research.

    Out of the 13 presidents since 1953, Biden ranks ninth in terms of stock market performance through this point in office, besting only former Presidents George W. Bush (-32.8%), Carter (-8.9%), Richard Nixon (-17.2%) and John F. Kennedy (-2.1%), according to CFRA.

    By contrast, Biden’s two immediate predecessors headed into their first midterm election with stock markets surging. The S&P 500 climbed 52.2% during the first 656 calendar days in office for former President Barack Obama and 23.9% under former President Donald Trump, according to CFRA.

    American consumers borrowed another $25 billion in September, according to newly released Federal Reserve data, as higher costs led to further dependence on credit cards and other loans, reports my colleague Alicia Wallace.

    In normal economic times, that would be a concerningly large jump, said Matthew Schulz, chief credit analyst for LendingTree, wrote in a tweet. “However, it is actually the second-smallest increase in the past year.” Economists were anticipating monthly growth of $30 billion, according to Refinitiv consensus estimates.

    The data is not adjusted for inflation, which is at decade highs and weighing heavily on Americans, outpacing wage gains and forcing consumers to rely more heavily on credit cards and their savings.

    In the second quarter of this year, credit card balances saw their largest year-over-year increases in more than two decades, according to separate data from the New York Federal Reserve. The third-quarter household debt and credit report is set to be released Nov. 15.

    Correction: A previous version of this article incorrectly stated the number of calendar days in the analysis as well as the stock market performance under various US presidents during that period.

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  • Interest rates will keep rising. How high will they go? | CNN Business

    Interest rates will keep rising. How high will they go? | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN Business
     — 

    What will the Federal Reserve do at its meeting in December? Analysts can speculate all they want, but Fed officials say they will be using hard economic data to make their next decision.

    That means key housing, labor, and inflation reports will likely have outsized effects on the market as investors speculate about what they might mean for the future of interest rates.

    What’s happening: No one can move markets like Federal Reserve Chair Jerome Powell — with just a few words on Wednesday he crushed investors’ hopes of an interest rate pivot and sent stocks plunging. “We have a ways to go,” said Powell of the Fed’s current hiking regime meant to fight persistent inflation. “It’s very premature, in my view, to think about or be talking about pausing.”

    But Powell did add an important caveat. The Fed could start to slow the pace of those painful hikes as soon as December. “Our decisions will depend on the totality of incoming data and their implications for the outlook for economic activity and inflation,” Powell said on Wednesday.

    So what will the Fed be looking at between today and its next policy decision on December 14?

    The labor market: The Fed’s biggest worry is the super-tight US labor market, and Friday’s jobs report isn’t likely to soothe any nerves.

    The government report is expected to show the economy added another 200,000 positions in October — down from last month, but still a very solid number as demand for employment continues to outpace the supply of labor.

    That means more inflation. Businesses have to pay higher wages to attract employees and are able to charge more for their goods and services. The Fed will be looking closely at hourly wage growth in the report. In September, wages rose by 5% from a year ago.

    There is a possible upside: Another jobs report in December is expected ahead of the Fed meeting. If both reports show a downward trajectory in employment, that could be enough to placate Fed officials, even if the unemployment rate remains historically low.

    Inflation data: Expect new data from two major indexes that measure the pace of inflation ahead of the next Federal Reserve meeting.

    The Consumer Price Index (CPI) for October, which tracks changes in the prices of a fixed set of goods and services, is out on November 10.

    Core CPI prices, which exclude oil and food, rose 0.6% in September month-over-month, matching August’s pace and coming in well above expectations of a 0.4% increase, not a great sign for the Fed. And analysts expect to see another large 0.5% increase in October.

    The Fed will also get to see October data from its favored measure of inflation, Personal Consumption Expenditures (PCE), on December 1.

    PCE reflects changes in the prices of goods and services purchased by consumers in the United States. The Fed believes the measure is more accurate than CPI because it accounts for a wider range of purchases from a broader range of buyers.

    Core PCE climbed by 5.1% on an annual basis in September, higher than the August rate of 4.9% but below the consensus estimate of 5.2%, per Refinitiv.

    Housing: The housing market has been deeply impacted by the Fed’s efforts to fight inflation, and is one of the first areas of the economy to show signs of cooling.

    The 30-year fixed-rate mortgage averaged 6.95% last week, up from 3.09% just a year ago, and elevated borrowing costs are leading to a decline in demand.

    “The housing market was very overheated for the couple of years after the pandemic as demand increased and rates were low,” said Powell on Wednesday. “We do understand that that’s really where a very big effect of our policies is.”

    October’s new and existing home sales numbers, due on November 18 and 23, will show the continued impact of that policy ahead of the next meeting.

    The US economy is still standing strong in the face of rising interest rates, but things are softening much more quickly across the pond.

    The United Kingdom will face hard economic times and elevated interest rates well into next year, officials warned this week.

    The Bank of England raised interest rates by three-quarters of a percentage point on Thursday, the biggest hike in 33 years, as it attempts to fight soaring inflation.

    But the bank also issued a stark warning. It said that economic output is already contracting and that it expects a recession to continue through the first half of 2024 “as high energy prices and materially tighter financial conditions weigh on spending.”

    A two-year recession would be longer than the one that followed the 2008 global financial crisis, though the Bank of England said that any declines in GDP heading into 2024 would likely be relatively small.

    The central bank also doesn’t think inflation will start to fall back until next year. That will require more interest rate hikes in the coming months, warned policymakers.

    Elon Musk has been busy over at Twitter HQ. Aside from tweeting and deleting a conspiracy theory, he’s talked about implementing some big changes at his $44 billion acquisition. Here’s what’s happened so far:

    Layoffs begin: Elon Musk began laying off Twitter employees on Friday morning, according to a memo sent to staff. The email sent Thursday evening notified employees that they will receive a notice by 12 p.m. ET Friday that informs them of their employment status.

    The email added that “to help ensure the safety” of employees and Twitter’s systems, the company’s offices “will be temporarily closed and all badge access will be suspended.”

    Twitter had around 7,500 employees prior to Musk’s takeover.

    Several Twitter employees have already filed a class action lawsuit claiming that the layoffs violate the federal Worker Adjustment and Retraining Notification Act.

    The WARN Act requires any company with over 100 employees to give 60 days’ written notice if it intends to cut 50 jobs or more at a “single site of employment.”

    Consolidating strength: In less than a week since Musk acquired Twitter, the company’s C-suite appears to have almost entirely cleared out, through a mix of firings and resignations.

    Twitter’s board of directors was also dissolved last week, according to a securities filing.

    The company filing states that all previous members of Twitter’s board, including recently ousted CEO Parag Agrawal and chairman Bret Taylor, are no longer directors “in accordance with the terms of the merger agreement.” That makes Musk, according to the filing, “the sole director of Twitter.”

    Cashing blue checks’ checks: Musk on Tuesday said he planned to charge $8 a month for Twitter’s subscription service, called “Twitter Blue,” with the promise to let anyone pay to receive a coveted blue check mark to verify their account. That’s a steep haircut from his original plan to charge users $19.99 a month to get or keep a verified account.

    In a tweet, the world’s richest man used an expletive to describe his assessment of “Twitter’s current lords & peasants system for who has or doesn’t have a blue checkmark.” He added: “Power to the people! Blue for $8/month.”

    Advertisers hit pause: Elon Musk wrote an open letter to advertisers just hours before cementing his acquisition of Twitter, explaining that he didn’t want the platform to become a “free-for-all hellscape.” But that attempt at reassuring the advertising industry, which makes up the vast majority of Twitter’s business, doesn’t appear to be working.

    General Mills

    (GIS)    , Mondelez International

    (MDLZ)    , Pfizer

    (PFE)     and Audi

    (AUDVF)     have reportedly joined a growing list of companies hitting pause on their Twitter advertising in the wake of Musk’s acquisition.

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