From PasadenaNOW: Pasadena’s sales tax revenue for the fourth quarter of 2023 fell by 0.2% on a cash basis and 1.7% on an adjusted basis compared to the same period in 2022, according to a report released Thursday by Matthew Hawkesworth, Pasadena’s Director of Finance and Acting Assistant City Manager.
The report, accompanied by a detailed summary prepared by HdL Companies for the City, showed the decline in sales tax revenue follows several quarters of flat year-over-year growth and reflects the impact of economic challenges on consumer spending.
The report showed that only restaurants and hotels showed growth among local businesses, particularly in fine dining and fast-casual dining. Other sectors, such as consumer goods, electronics, and appliances, experienced declines.
HdL Companies revealed that receipts from October through December were 1.1% lower than the fourth quarter of 2022, with actual sales down 1.7% when excluding reporting differences. Factors contributing to the decline include lower car prices, higher loan rates, and reduced spending on non-essential items.
Statewide, California’s sales tax receipts for the fourth quarter were 2.5% lower than the same quarter in the previous year, after adjusting for accounting anomalies. The Southern California region saw a 2.0% drop in taxable sales.
2023 ended with a 2.3% decline in sales tax revenue compared to 2022, as high inflation and interest rates led to increased costs and reduced consumer spending. This trend may continue in 2024, delaying a return to normal historical growth.
From the Associated Press: California’s Population Grew in 2023, Halting 3 Years of Decline-...California gained population last year for the first time since 2019, according to a new estimate released Tuesday by Gov. Gavin Newsom’s administration. The net increase of just over 67,000 residents in 2023 — a 0.17% increase — stopped a three-year trend of population decline, which included the state’s first-ever year-over-year loss during the pivotal census year of 2020 that later led to California losing a congressional seat.
From the Financial Times: US economy grew less than expected in first quarter at 1.6% rate-The US economy grew less than expected for the first quarter of 2024, at an annualised rate of 1.6 per cent. The figure from the Bureau of Economic Analysis was far below analysts’ expectations of a 2.5 per cent rise and the revised rate of 3.4 per cent for the fourth quarter.
From the New York Times: U.S. Growth Slowed in First Quarter, but Inflation Remained a Bug-Gross domestic product, adjusted for inflation, increased at a 1.6 percent annual rate in the first three months of the year.
The U.S. economy remained resilient early this year, with a strong job market fueling robust consumer spending. The trouble is that inflation was resilient, too.
Gross domestic product, adjusted for inflation, increased at a 1.6 percent annual rate in the first three months of the year, the Commerce Department said on Thursday. That was down sharply from the 3.4 percent growth rate at the end of 2023 and fell well short of forecasters’ expectations.
Economists were largely unconcerned by the slowdown, which stemmed mostly from big shifts in business inventories and international trade, components that often swing wildly from one quarter to the next. Measures of underlying demand were significantly stronger, offering no hint of the recession that forecasters spent much of last year warning was on the way.
But the solid growth figures were accompanied by an unexpectedly rapid acceleration in inflation. Consumer prices rose at a 3.4 percent annual rate in the first quarter, up from 1.8 percent in the final quarter of last year. Excluding the volatile food and energy categories, prices rose at a 3.7 percent annual rate.
Taken together, the first-quarter data was the latest evidence that the Federal Reserve’s efforts to tame inflation have stalled — and that the celebration in financial markets over an apparent “soft landing” or gentle slowdown for the economy had been premature.
At a minimum, stubborn inflation is likely to mean that the Fed will wait at least until fall to begin cutting interest rates. Some forecasters think it is possible that policymakers won’t just keep rates “higher for longer,” as investors have been anticipating for several weeks now, but might actually raise them further.
Financial markets fell on the news. The S&P 500 index ended the day down about half a percentage point, and yields on government bonds rose as investors anticipated that borrowing costs will remain high.
Investors aren’t the only ones who could suffer if interest rates remain high. There are mounting signs that high borrowing costs are weighing on Americans’ financial well-being. Consumers saved just 3.6 percent of their after-tax income in the first quarter, down from 4 percent at the end of last year and more than 5 percent before the pandemic.
The signs of strain are particularly acute for lower-income households. They have increasingly turned to credit cards to afford their spending, and with interest rates high, more of them are falling behind on their payments.
Yet despite those strains, consumer spending, in the aggregate, shows little sign of cooling down. Spending rose at a 2.5 percent annual rate in the first quarter, only modestly slower than in late 2023, and spending on services like travel and entertainment actually accelerated.
From the Financial Times: US labour market undershoots forecasts with 175,000 new jobs-The US added 175,000 jobs in April, well below expectations, in a sign that the labour market in the world’s largest economy is cooling down.
From the New York Times: The Federal Reserve spent much of 2022 and 2023 narrowly focusing on inflation as policymakers set interest rates: Prices were rising way too fast, so they became the central bank’s top priority. But now that inflation has cooled, officials are more clearly factoring the job market into their decisions again.
One potential challenge? It’s a very difficult moment to assess exactly what monthly labor market data are telling us.
Jerome H. Powell, the Fed chair, said during a news conference on Wednesday that the way the job market shaped up in coming months could help to guide whether and when the central bank lowered interest rates this year. A substantial weakening could prod policymakers to cut, he suggested. If job growth remains rapid and inflation remains stuck, on the other hand, the combination could keep the Fed from lowering interest rates anytime soon.
But it is tough to guess which of those scenarios may play out — and it is trickier than usual to determine how hot today’s job market is, especially in real time. Fed officials will get their latest reading on Friday morning, when the Labor Department releases its April employment report.
Hiring has been rapid in recent months. That would typically make economists nervous that the economy was on the cusp of overheating: Businesses would risk competing for the same workers, pushing up wages in a way that could eventually drive up prices.
But this hiring boom is different. It has come as a wave of immigrants and workers coming in from the labor market’s sidelines have helped to notably increase the supply of applicants. That has allowed companies to hire without depleting the labor pool.
Yet the jump in available workers has also meant that a primary measure that economists use in assessing the job market’s strength — payroll gains — is no longer providing a clear signal. That leaves economists turning to other indicators to evaluate the strength of the job market and to forecast its forward momentum. And those measures are delivering different messages.
Wage growth is still very strong by some gauges, but it seems to be cooling by others. Job openings have been coming down, the unemployment rate has ticked up recently (particularly for Black workers) and hiring expectations in business surveys have wobbled.
The takeaway is that this seems to be a strong job market, but exactly how strong is hard to know. It is even harder to guess how much oomph will remain in the months to come. If job gains were to slow, would that be a sign that the economy was beginning to buckle, or just evidence that employers had finally sated their demand for new hires? If job gains were to stay strong, would that be a sign that things were overheating, or evidence that labor supply was still expanding?
From the New York Times: Fed Holds Rates Steady, Noting Lack of Progress on Inflation
The Federal Reserve left interest rates unchanged for a sixth straight meeting and suggested that rates would stay high for longer.
Federal Reserve officials left interest rates unchanged and signaled that they were wary about how stubborn inflation was proving, paving the way for a longer period of high borrowing costs.
The Fed held rates steady at 5.3 percent on Wednesday, leaving them at a more than two-decade high, where they have been set since July. Central bankers reiterated that they needed “greater confidence” that inflation was coming down before reducing them.
Today, the F.O.M.C. decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings, though, at a slower pace. Our restrictive stance of monetary policy has been putting downward pressure on economic activity and inflation, and the risks to achieving our employment and inflation goals have moved toward better balance over the past year. However, in recent months, inflation has shown a lack of further progress toward our 2 percent objective, and we remain highly attentive to inflation risks. We’ve stated that we do not expect that it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent. So far this year, the data have not given us that greater confidence. In particular, and as I noted earlier, readings on inflation have come in above expectations. It is likely that gaining such greater confidence will take longer than previously expected.
The Fed stands at a complicated economic juncture. After months of rapid cooling, inflation has proved surprisingly sticky in early 2024. The Fed’s preferred inflation index has made little progress since December, and although it is down sharply from its 7.1 percent high in 2022, its current 2.7 percent is still well above the Fed’s 2 percent goal. That calls into question how soon and how much officials will be able to lower interest rates.
The Fed raised interest rates quickly between early 2022 and the summer of 2023, hoping to slow the economy by tamping down demand, which would in turn help to wrestle inflation under control. Higher Fed rates trickle through financial markets to push up mortgage, credit card and business loan rates, which can cool both consumption and company expansions over time.
Also from the New York Times: High Fed Rates Are Not Crushing Growth. Wealthier People Help Explain Why.
High rates usually pull down asset prices and hurt the housing market. Those channels are muted now, possibly making policy slower to work.
More than two years after the Federal Reserve started lifting interest rates to restrain growth and weigh on inflation, businesses continue to hire, consumers continue to spend and policymakers are questioning why their increases haven’t had a more aggressive bite.
The answer probably lies in part in a simple reality: High interest rates are not really pinching Americans who own assets like houses and stocks as much as many economists might have expected.
Some people clearly are feeling the squeeze of Fed policy. Credit card rates have skyrocketed, and rising delinquencies on auto loans suggest that people with lower incomes are struggling under their weight.
But for many people in middle and upper income groups — especially those who own their homes outright or who locked in cheap mortgages when rates were at rock bottom — this is a fairly sunny economic moment. Their house values are mostly holding up in spite of higher rates, stock indexes are hovering near record highs, and they can make meaningful interest on their savings for the first time in decades.
Because many Americans feel good about their personal finances, they have also continued opening their wallets for vacations, concert tickets, holiday gifts, and other goods and services. Consumption has remained surprisingly strong, even two years into the Fed’s campaign to cool down the economy. And that means the Fed’s interest rate moves, which always take time to play out, seem to be even slower to work this time around.
From the New York Times: A Strong U.S. Dollar Weighs on the World
Every major currency in the world has fallen against the U.S. dollar this year, an unusually broad shift with the potential for serious consequences across the global economy.
Two-thirds of the roughly 150 currencies tracked by Bloomberg have weakened against the dollar, whose recent strength stems from a shift in expectations about when and by how much the Federal Reserve may cut its benchmark interest rate, which sits around a 20-year high.
High Fed rates, a response to stubborn inflation, mean that American assets offer better returns than much of the world, and investors need dollars to buy them. In recent months, money has flowed into the United States with a force that’s being felt by policymakers, politicians and people from Brussels to Beijing, Toronto to Tokyo.
The dollar index, a common way to gauge the general strength of the U.S. currency against a basket of its major trading partners, is hovering at levels last seen in the early 2000s (when U.S. interest rates were also similarly high).
The yen is at a 34-year low against the U.S. dollar. The euro and Canadian dollar are sagging. The Chinese yuan has shown notable signs of weakness, despite officials’ stated intent to stabilize it.
When the dollar strengthens, the effects can be fast and far-reaching.
The dollar is on one side of nearly 90 percent of all foreign exchange transactions. A strengthening U.S. currency intensifies inflation abroad, as countries need to swap more of their own currencies for the same amount of dollar-denominated goods, which includes imports from the United States as well as globally traded commodities, like oil, often priced in dollars. Countries that have borrowed in dollars also face higher interest bills.
There can be benefits for some foreign businesses, however. A strong dollar benefits exporters that sell to the United States, as Americans can afford to buy more foreign goods and services (including cheaper vacations). That puts American companies that sell abroad at a disadvantage, since their goods appear more expensive, and could widen the U.S. trade deficit at a time when President Biden is promoting more domestic industry.
Exactly how these positives and negatives shake out depends on why the dollar is stronger, and that depends on the reason U.S. interests rates might remain high.
Earlier in the year, unexpectedly strong U.S. growth, which can lift the global economy, had begun to outweigh worries over stubborn inflation. But if U.S. rates remain high because inflation is sticky even as economic growth slows, then the effects could be more “sinister,” said Kamakshya Trivedi, an analyst at Goldman Sachs.
In that case, policymakers would be stuck between supporting their domestic economies by cutting rates or supporting their currency by keeping them high. “We are at the cusp of that,” Mr. Trivedi said.
The strong dollar’s effects have been felt particularly sharply in Asia. This month, the finance ministers of Japan, South Korea and the United States met in Washington, and among other things they pledged to “consult closely on foreign exchange market developments.” Their post-meeting statement also noted the “serious concerns of Japan and the Republic of Korea about the recent sharp depreciation of the Japanese yen and the Korean won.”