Spending for the Holidays (from the New York Times): The consumer is back — but for how long? Black Friday and Cyber Monday shopping bonanzas hold outsize political significance this year with the retailing events emerging as key recession and inflation indicators. So far, so good. Bargain hunters turned out in force for Black Friday sales, and Cyber Monday is forecast to be even bigger. But with consumers showing signs of pulling back on spending, will this splurge be enough to save retailers’ Christmas and keep the U.S. economy from contracting or even plunging into recession?
The White House is paying attention. Consumers have grown pessimistic about the economy, data shows. At the same time, President Biden’s polling numbers have fallen, with the economy seen as a glaring weaknesses.
Biden’s advisers are pushing back. This past weekend, they pointed to strong Black Friday data as a sign of the economy’s resilience. Still, inflation remains a particular sore point with voters. According to The Washington Post, the White House has begun tracking inflation gripes posted on social media.
The Fed will be watching, too. Inflation remains well above the central bank’s 2 percent target, prompting Jay Powell, the Fed chair, to signal that policymakers will likely keep borrowing costs higher for longer in an effort to cool down prices. This month’s retail data could be a factor in how the central bank approaches its interest rates policy next year.
From Reuters: US Consumer Spending Slows; Labor Market Steadily Easing. U.S. consumer spending rose moderately in October, while the annual increase in inflation was the smallest in more than 2-1/2 years, signs of cooling demand that bolstered expectations the Federal Reserve’s interest rate hiking campaign was over. Those hopes were reinforced by other data on Thursday showing the labor market gradually easing. More Americans applied for unemployment benefits last week and the number on jobless rolls surged to a two-year high in mid-November.
Jobs: From the Financial Times: US businesses added 199,000 jobs in November. US businesses added 199,000 jobs in November, a rise on October and another sign of labour market strength that will bolster Federal Reserve officials’ view that interest rates will need to remain high for some time yet.
Inflation: From CBS News: After grappling with high inflation for more than two years, American consumers are now seeing an economic trend that many might only dimly remember: falling prices — but only on certain types of products.
Deflation is impacting so-called durable goods, or products that are meant to last more than three years, Wall Street Journal reporter David Harrison told CBS News. As Harrison noted in his reporting, durable goods have dropped on a year-over-year basis for five straight months and dropped 2.6% in October from their September 2022 peak.
These items are products such as used cars, furniture and appliances, which saw big run-ups in prices during the pandemic. Used cars in particular were a pain point for U.S. households, with pre-owned cars seeing their prices jump more than 50% in the first two years of the pandemic.
These recent pockets of deflation could help push the overall U.S. inflation rate closer to 2%, which is the level the Federal Reserve is targeting. The central bank has raised its benchmark rate 11 times since early 2022, part of its plan to make it more expensive for consumers and businesses to buy homes, autos and other items that are purchased with loans or credit.
As a result, inflation is easing, reaching the point where most economists are now predicting the Federal Reserve will hold off on additional rate hikes. The Fed's next interest-rate meeting will be on December 13.
From the New York Times: Consumer prices rose 3.1 percent in the year through November, and a closely watched core index was roughly the same rate as the previous month.
Inflation data released on Tuesday showed that price increases remained moderate in November, the latest sign that inflation has cooled substantially from its June 2022 peak. That’s likely to keep the Federal Reserve on track to leave interest rates unchanged at its final meeting of the year, which takes place this week.
The Consumer Price Index came out just hours before the Fed began its two-day gathering, which will conclude with the release of an interest rate decision and a fresh set of quarterly economic projections at 2 p.m. on Wednesday. Jerome H. Powell, the Fed chair, is then scheduled to hold a news conference.
Central bankers have embraced a recent slowdown in price increases, and Tuesday’s data largely suggested that inflation remains lower than earlier this year. Overall inflation climbed 0.1 percent on a monthly basis, making for a 3.1 percent increase compared to a year earlier.
That was cooler than 3.2 percent in October, and it is down notably from a peak above 9 percent in the summer of 2022.
Fed Leaves Rates Unchanged and Signals Three Cuts Next Year-Federal Reserve policymakers left rates unchanged and projected three quarter-point rate cuts in 2024 as their inflation outlook improved.
Federal Reserve officials left interest rates unchanged in their final policy decision of 2023 and forecast that they will cut borrowing costs three times in the coming year, a sign that the central bank is shifting toward the next phase in its fight against rapid inflation.
Interest rates are set to a range of 5.25 to 5.5 percent, where they have been since July. After making a rapid series of increases that started in March 2022 and pushed borrowing costs to their highest level in 22 years as of this summer, officials have held policy steady for three straight meetings.
That patient stance has given policymakers time to assess whether interest rates are high enough to weigh on the economy and ensure that inflation will slow to the Fed’s 2 percent target over time — and increasingly, slowing inflation and a cooling job market have convinced them that policy is in a good place. Jerome H. Powell, the Fed chair, said during his news conference Wednesday that officials no longer expected to raise interest rates again.
In fact, Fed policymakers projected on Wednesday that they would lower borrowing costs to 4.6 percent by the end of 2024, down notably from their previous 5.1 percent estimate, which was released in September. The forecast implies that officials will make three quarter-point rate cuts next year.
From the Financial Times: Eurozone inflation falls more than expected to 2.4%. Inflation in the eurozone has fallen far more than expected to 2.4 per cent in November, the slowest annual pace since July 2021, providing some relief to consumers and raising hopes that interest rates could soon be cut.
and:
The Federal Reserve appears to be creeping closer to an outcome that its own staff economists viewed as unlikely just six months ago: lowering inflation back to a normal range without plunging the economy into a recession.
Plenty could still go wrong. But inflation has come down notably in recent months — it is running at 3.1 percent on a yearly basis, down from a 9.1 percent peak in 2022. At the same time, growth is solid, consumers are spending, and employers continue to hire.
That combination has come as a surprise to economists. Many had predicted that cooling a red-hot job market with far more job openings than available workers would be a painful process. Instead, workers returned from the labor market sidelines to fill open spots, helping along a relatively painless rebalancing. At the same time, healing supply chains have helped to boost inventories and ease shortages. Goods prices have stopped pushing inflation higher, and have even begun to pull it down.
The Fed is hoping for “a continuation of what we have seen, which is the labor market coming into better balance without a significant increase in unemployment, inflation coming down without a significant increase in unemployment, and growth moderating without a significant increase in unemployment,” Jerome H. Powell, the Fed chair, said Wednesday.
As Fed policymakers look ahead to 2024, they are aiming squarely for a soft landing: Officials are trying to assess how long they need to keep interest rates high to ensure that inflation is fully under control without grinding economic growth to an unnecessarily painful halt. That maneuver is likely to be a delicate one, which is why Mr. Powell has been careful to avoid declaring victory prematurely.
But policymakers clearly see it coming into view, based on their economic projections. The Fed chair signaled on Wednesday that rates were unlikely to rise from their 5.25 to 5.5 percent setting unless inflation stages a surprising resurgence, and central bankers predicted three rate cuts by the end of 2024 as inflation continues to cool and joblessness rises only slightly.
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Consumers continue to spend, and growth in the third quarter was unexpectedly hot.Credit...Tony Cenicola/The New York Times
People on a street holding shopping bags near stores decorated with Christmas trees and ornaments.
If they can nail that landing, Mr. Powell and his colleagues will have accomplished an enormous feat in American central banking. Fed officials have historically tipped the economy into a recession when trying to cool inflation from heights like those it reached in 2022. And after several years during which Mr. Powell has faced criticism for failing to anticipate how lasting and serious inflation would become, such a success would be likely to shape his legacy.
Caifornia Economy: From the CalChamber: California Revenue Shortfall Tagged at $58 Billion, May Worsen Next Year. California’s famously volatile tax machine has delivered another dose of unpredictability. According to the nonpartisan Legislative Analyst’s Office (LAO), the state suffered a $26 billion revenue shortfall in the last fiscal year, and faces a cumulative three-year shortfall of $58 billion through the 2024–25 fiscal year.
AND: EU agrees landmark rules on artificial intelligence. EU lawmakers have agreed the terms for landmark legislation to regulate artificial intelligence, pushing ahead with enacting the world’s most restrictive regime on the development of the technology.