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Bank of America’s Guide How To Talk To Your Family About The Economy Over The Holidays

Bank of America’s Guide How To Talk To Your Family About The Economy Over The Holidays

By Bank of America chief global economist, Aditya Bhave




Bank of America's Guide How To Talk To Your Family About The Economy Over The Holidays

By Bank of America chief global economist, Aditya Bhave

We’ve all been there. You work in finance, so inevitably someone will approach you at a holiday gathering and ask you about the economy. But we’ve got your back. In this report, we list 10 questions you might get asked. For each question, we suggest both a short response – in case dessert is served or you just don’t want to talk shop – and a more detailed response – if you really want to engage in the conversation. As a disclaimer, these are the views of BofA Global Research’s US Economics team. Others might answer these questions differently, but that would only liven up the discussion!

1. “Are we in a recession? Didn’t we have two consecutive quarters of negative GDP growth this year?”

Short answer: Not yet.

Longer answer: We had two consecutive quarters of negative GDP growth in 1Q and 2Q 2022. This amounts to what’s known as a “technical recession”. But the National Bureau of Economic Research (NBER) makes the “official” call on whether we are in a recession. The NBER looks at several economic indicators, not just GDP. A few of those indicators are related to the labor market (job creation and wage growth), so it’s unlikely that we will enter an NBER-defined recession until the labor market cracks. At the moment the labor market is still very hot, due to both strong demand for workers and labor supply shortages.

Technical recessions typically overlap with NBER-defined recessions. This time is different because GDP has been distorted by large swings in the trade and inventory data. Once we exclude these components, we see that final domestic demand (i.e., consumer spending, residential and business investment, and government spending), is weak, but is still growing (Exhibit 1).

* * *

2. “So when will the next recession start?”

Short answer: Probably next year.

Longer answer: The tipping point for a recession should be when the labor market slows materially. Consumer spending has been relatively resilient so far. If the labor market breaks, not only will the NBER’s recession criteria likely get triggered, but consumer spending will also probably weaken significantly. Since the consumer is nearly 70% of the economy, that would drive domestic demand lower. We will probably go into a mild recession next year.

The labor market is likely to weaken next year for a few reasons. First, hiring has outpaced GDP growth by a long way this year. Payrolls have grown by over 2.5%, while real GDP growth has been less than 1%. This is not sustainable. Second, higher rates (due to Fed hikes) are hurting business and residential investment. The housing market is already in a recession and the manufacturing sector appears to be following suit. This should eventually translate into job losses. Third, the Fed hiked rates by 425bp this year and Fed hikes affect the economy with “long and variable lags”. So a lot of the economic and labor market damage from this year’s Fed tightening probably hasn’t happened yet.

* * *

3. “This feels like the most widely anticipated recession that I can remember. Is there a chance that we could talk ourselves into a recession?”

Short answer: Yes and no.

Longer answer: There is some truth to the idea that recessions can be self-fulfilling prophecies. If businesses expect weaker consumer demand, they might stop investing and start laying off workers. Similarly, consumers might pull back on spending if they are concerned about an economic slowdown. Such precautionary behavior would likely create the recession that everyone was worried about.

But it isn’t as simple as that. Painful recessions are generally due to the build-up of excesses in the economy. If consumers and businesses start to become cautious before such excesses build, that could limit the scope of any potential downturn. The three sectors in the economy in which these excesses usually build are consumer durables, residential investment and business investment. Currently there only modest signs of excess in these sectors (Exhibit 2). Yet banks have already started to become less willing to lend to consumers (Exhibit 3). So perhaps the recession has been so well telegraphed that it turns out to be self-inhibiting rather than self-fulfilling.

* * *

4. “You said the housing market is in a recession. Are we headed for a housing crisis?”

Short answer: Probably not.

Longer answer: Housing is arguably the most rates-sensitive sector of the economy. Therefore it is no surprise that very aggressive Fed hikes have pushed the housing market into recession (Exhibit 4). After all, the 30-year mortgage rate increased from around 3% at the start of last year to more than 7% briefly, and is still well north of 6%. Tight supply – of construction labor, materials, etc. – has further hindered housing activity, although it has helped support prices (Exhibit 5).

However, this doesn’t mean we are headed for a crisis. Slowdowns in specific sectors turn into economy-wide crises when there are conditions in place that amplify their impact. In the run-up to the financial crisis, speculation (rather than fundamentals) played a big role in the demand for housing, adjustable-rate mortgages were more common, lending standards were loose and households were levering up their home equity using home equity lines of credit (HELOCs).

In the post-pandemic housing boom, demand was driven by a big generation of millennials moving into larger spaces, a very large majority of mortgages were locked in at fixed rates (so people who already have mortgages will generally not be hurt by Fed hikes), lending standards were relatively tight and there was limited use of HELOCs. Moreover, regulators are much more vigilant about the risks of a housing crisis. At the start of the pandemic there was significant forbearance for borrowers. This is likely to repeat if there is growing risk of a crisis, in order to prevent fire sales. All of this suggests that another housing crisis is unlikely.

5. “You don’t sound overly concerned about the economy. Is there a chance we’ll avoid a recession entirely next year?”

Short answer: There’s always a chance, but we’re likely to have at least a mild recession.

Longer answer: We won’t get a recession until the labor market weakens materially. Job growth has been resilient of late. We probably added around 4mn jobs in 2022, and over 800k in the last three months. To put that in context, we need to create just 50-100k jobs per month to match the growth rate of the population. This means it’s quite possible that the economy could avoid a recession in the first half of 2023.

However, it will be harder to avoid a recession for the full year. Here’s the issue. As long as the labor market remains hot, there is a risk that job growth and higher wages will create more inflation down the line. So the Fed would likely respond by raising rates even higher, which would inflict even more pain on the economy later next year. In other words, a delayed recession might mean a deeper one. We need to be careful what we wish for.

* * *

6. “You make it sound like the Fed is determined to break the labor market. What’s so special about 2% inflation anyway? Wouldn’t it be better to accept higher inflation than cause a recession?”

Short answer: There is nothing special about 2%. But abandoning the target now would put the Fed on a slippery slope. Unfortunately, the only way to get and keep inflation under control is to materially weaken the labor market.

Longer answer: In general, low but positive inflation is considered best for economic growth. Why? On the one hand, outright deflation causes consumers to delay purchases in anticipation of lower prices. As we have seen in Japan, this damages growth prospects. On the other hand, high single-digit or double-digit inflation is problematic because it tends to also be more volatile, creating uncertainty, which in turn slows spending and investment. Central banks across developed markets settled on 2% because it is a low rate of inflation that still gives them a sizeable buffer from deflation.

This is the first time the Fed’s commitment to taming inflation has been seriously tested in about four decades. If the Fed were to change its inflation target to say 4%, it would be on a slippery slope (Global Economic Weekly: What is so special about 2%?). If 4% is acceptable, why not 6% or 8%? So the target would lose credibility in the eyes of investors. But it’s possible that if inflation gets stuck a little bit above target (say 3%), the Fed would accept a longer time frame to get back to 2% instead of inflicting a lot of economic pain to get there sooner.

The Fed generally looks at core inflation, i.e. inflation ex of food and energy, because food and energy prices tend to be more volatile and driven by factors outside the Fed’s control (such as the Russia-Ukraine conflict). In a recent speech, Fed Chair Powell noted that services besides housing make up more than half of the core consumer spending basket (Exhibit 6). These services are labor-intensive and are seeing rapid job and wage growth as consumers return to pre-pandemic spending habits. Higher labor costs are pushing up prices (Exhibit 7). Therefore the only way for the Fed to bring core inflation back to 2% in a manner that is sustainable over time is to weaken the labor market.

* * *

7. “But inflation is already getting better, right?”

Short answer: Yes, but it might not last.

Longer answer: Goods prices spiked in the spring of 2021 because of supply-chain disruptions and huge demand for stay-at-home goods from US consumers who were awash with cash. At the time, the ARPA (American Rescue Plan Act) had just been implemented. It was the last of three big stimulus packages, the others being the CARES (Coronavirus Aid, Relief, and Economic Security) Act and the CAA (Consolidated Appropriations Act) of 2020. Now supply issues have largely been sorted out and goods demand is slowing. So goods prices have started to fall. That’s helping to slow overall inflation, but the faster goods prices correct, the sooner they will stop correcting.

The US economy is predominantly a services economy. And as we discussed earlier, the only way to bring services inflation under control is to slow the labor market down. Unless that happens, the risk is that overall inflation will pick up again once goods prices stop falling.

* * *

8. “How are US consumers dealing with higher inflation, particularly in necessities such as food and energy?”

Short answer: Inflation is painful, but a strong labor market and pandemic-era stimulus have helped the consumer to remain resilient.

Longer answer: For the US consumer, there is an ongoing tug-of-war between inflation and labor market gains. Food and energy inflation has been particularly challenging for lower-income households, who spend a larger share of their income on necessities. But they are also experiencing strong job growth and the fastest wage inflation in the economy (Exhibit 8). This is offsetting some of the pain from inflation and allowing consumer spending to remain relatively resilient.

The US consumer is also still being propped up by excess savings from the pandemic-era fiscal stimulus packages. Consumers still probably have more than $1 trillion in excess savings, which they are drawing down at a rate of about $100bn per month, partially in response to the inflation shock (Exhibit 9). So these savings could be a tailwind to consumer spending for a few more quarters.

* * *

9. “I read that US consumers have racked up nearly $1trillion in credit card debt. How concerning is this?”

Short answer: It isn’t very concerning yet.

Longer answer: Credit card debt has increased from less than $800bn at the start of last year to $925bn as of 3Q 2022. This is a sharp increase that certainly bears watching. It is probably being driven by both liquidity constraints for consumers and increasing interest rates. The level of credit card debt is close to the all-time high, reached just before the pandemic.

But it is important to remember that what matters with debt is consumers’ capacity to service it. Income has also been growing rapidly, and that helps a lot. Credit card debt was less than 5% of disposable income in 3Q 2022 (Exhibit 10). This is lower than at any time before the pandemic (the data go back to 1999). The trend is similar with credit card delinquencies: they are on the rise, but they are still below pre-pandemic levels.

* * *

10. “Are consumers spending as generously over the holidays as they did last year? Also, could you please pass the cranberry sauce?”

[First pass the cranberry sauce]

Short answer: No, but that isn’t a big surprise.

Longer answer: The holiday shopping season is obviously very important for the US consumer. Last year’s shopping season was historic, so it isn’t a huge surprise that we’re tracking weaker spending on holiday goods this year (Exhibit 11). Another factor weighing on the dollar value of holiday spending this year is that discounts have potentially been deeper and more back-loaded than last year. So we really need to adjust for inflation/deflation and wait until the end of the holiday season to get a full picture of holiday spending.

Finally, consumers are rotating back to services from goods as the impact of the pandemic fades (Exhibit 12). Last year, consumption of services during the holidays was disrupted by the omicron variant outbreak. People responded by spending more on holiday presents. This year, they are probably traveling more, dining out more and attending shows, concerts, sports events, etc.

Tyler Durden Sun, 12/25/2022 - 17:30

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Zelenskyy, Trudeau Honor Actual 3rd Reich Nazi With Standing Ovation

Zelenskyy, Trudeau Honor Actual 3rd Reich Nazi With Standing Ovation

Canadian Prime Minister Justin Trudeau and Ukrainian President Volodomyr…



Zelenskyy, Trudeau Honor Actual 3rd Reich Nazi With Standing Ovation

Canadian Prime Minister Justin Trudeau and Ukrainian President Volodomyr Zelenskyy - who commands a battalion of neo-Nazis - honored an actual WWII Nazi with a standing ovation on Friday.

Yaroslav Hunka, 98, fought in a Third Reich military formation accused of war crimes.

On Friday, he was honored during a session of Canadian parliament in which Zelenskyy addressed the lawmakers to thank them for their support since Russia invaded Ukraine, saying that Canada has always been on "the bright side of history."

Hunka stood for standing ovation and saluted, according to Canadian television.

According to the Associated Press, Hunka "fought with the First Ukrainian Division in World War II before later immigrating to Canada," another name for the 14th Waffen Grenadier Division of the SS, the Nazi party's military wing, also known as the SS Galichina.


Formed in 1943, SS Galichina was comprised of Ukrainians from the Galicia region in the western part of the country. It was armed and trained by Hitler's Nazis and commanded by German officers. The next year, the division received a visit from SS head Heinrich Himmler, who had high praise for the unit's effectiveness at slaughtering Poles.

The SS Galichina subunits were responsible for the Huta Pieniacka massacre, in which they burned 500 to 1,000 Polish villagers alive.

One of several photos on a blog by an SS Galichina veterans’ group that shows Yaroslav Hunka, the Ukrainian immigrant honored by the Canadian Parliament during a visit by Ukrainian President Volodymyr Zelenskyy. Hunka is in the front row, middle.

In fact, during the Nuremberg Trials, the Waffen-SS was declared to be a criminal organization responsible for mass atrocities.

Following the war, thousands of SS Galichina veterans were allowed to leave Germany and resettle in the West - with around 2,000 moving to Canada. By that time, they were known as the First Ukrainian Division.

A blog by an association of its veterans, called “Combatant News” in Ukrainian, includes an autobiographical entry by a Yaroslav Hunka that says he volunteered to join the division in 1943 and several photographs of him during the war. The captions say the pictures show Hunka during SS artillery training in Munich in December 1943 and in Neuhammer (now Świętoszów), Poland, the site of Himmler’s visit. 

In posts to the blog dated 2011 and 2010, Hunka describes 1941 to 1943 as the happiest years of his life and compares the veterans of his unit, who were scattered across the world, to Jews. -Forward

So, the same leftists who called Trump supporters Nazis for years are now honoring an actual Nazi - while Germany has notably locked up several concentration camp guards in their 90s for their involvement in Nazi activities.

University of Ottawa Political Scientist Ivan Katchanovski lays it out...

Meanwhile, here's Ukraine's Azov Battalion of neo-Nazis that everyone with a Ukraine flag in their bio is supporting...

Odd, they don't look like Trump supporters.

Maybe these Nazis can shed some light? Careful, "X" thinks this is sensitive material (that might redpill people?).


Tyler Durden Sun, 09/24/2023 - 14:25

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Kerry Acknowledges Need For Nuclear Power As Climate Diplomacy Dominates New York City

Kerry Acknowledges Need For Nuclear Power As Climate Diplomacy Dominates New York City

Authored by Nathan Worcester via The Epoch Times,




Kerry Acknowledges Need For Nuclear Power As Climate Diplomacy Dominates New York City

Authored by Nathan Worcester via The Epoch Times,

While addressing an Atlantic Council meeting on nuclear energy, U.S. Climate Envoy John Kerry made it clear he doesn't think wind and solar alone will be sufficient to meet global energy needs while achieving policy plans to rapidly scale back the use of hydrocarbons in the name of addressing climate change risks as outlined by the United Nations.

"You will have to have some component of nuclear—yet to be determined how big or where it'll go. That's going to be a market-based reaction," said Mr. Kerry, who served as a Democratic senator from Massachusetts before serving as Secretary of State under former President Barack Obama.

The 2004 Democratic candidate for president said that "most scientists will tell you" the goal of Net Zero 2050 cannot be achieved "unless we have a pot, a mixture of energy approaches."

"Clearly, we're going to need nuclear to be a part of that," he said on Monday.

Mr. Kerry's pro-nuclear remarks come as climate-related diplomacy and other climate-themed events overtake New York City.

Over the weekend, protesters demonstrated against fossil fuels in the streets of New York City, with Rep. Alexandria Ocasio Cortez (D-N.Y.) among the participants.

Mr. Kerry voiced support for those demonstrators in his speech to the Atlantic Council.

In addition, the U.N. will hold its inaugural Climate Ambition Summit on Sept. 20.

U.N. statement on the event states it "will showcase leaders who are 'first movers and doers' from government, business, finance, local authorities, and civil society who have credible actions, policies and plans to keep the 1.5°C degree goal of the Paris Agreement alive and deliver climate justice to those on the front lines of the climate crisis."

The Climate Ambition Summit comes ahead of the next annual United Nations Climate Change Conference, which will begin in late November. It's taking place in Dubai, United Arab Emirates.

Even as he praised climate protesters, Mr. Kerry noted that a previous generation of environmental activists had fought hard against nuclear power, now seen as a pragmatic solution by many climate hawks.

"In my state of Massachusetts, where there was a huge fight over Seabrook Nuclear Plant in New Hampshire, we now happily get about 20 percent of all our energy from Seabrook, and nobody's complaining—maybe about the prices a little bit, because that's normal in today's world," he said.

A view of the Seabrook Nuclear Power Plant in Seabrook, N.H., on March 21, 2011. (Emmanuel Dunand/AFP via Getty Images)

"The United States is now therefore committed, based on experience and based on reality, to trying to accelerate the deployment of nuclear energy, as part of the Biden program," he added.

The diplomat, who came under fire from Republicans earlier this summer for his unwillingness to share details of his staff at a Congressional hearing, commented positively on Bill Gates' TerraPower, which plans to build the next-generation Natrium nuclear reactor in Wyoming.

He also drew attention to his recent trip to Romania, where he visited a control room simulator for a small modular reactor developed by the American firm NuScale.

Mr. Kerry took issue with the continued construction of unabated coal-fired power plants and with the existence of subsidies for fossil fuels.

An International Monetary Fund (IMF) study identified $1.3 trillion in "explicit" subsidies for fossil fuels in 2022, a stark increase from $500 billion in 2020. Such subsidies are ascribed to fossil fuel prices when they are lower than they would otherwise be if producers fully bore supply costs. The IMF authors attributed a substantial proportion of the increase to "temporary price support measures," in line with surging fossil fuel prices during that period.

Whitehouse Touts ADVANCE Act

Mr. Kerry wasn't the only high-level Democratic politician who addressed the Atlanticist forum on Monday.

In pre-recorded remarks, Sen. Sheldon Whitehouse (D-R.I.) touted the bipartisan, nuclear power-related ADVANCE Act, which passed the Senate as part of the National Defense Authorization Act (NDAA) in July. The bill has not moved ahead in the House.

"Our legislation would strengthen the Nuclear Regulatory Commission's ability to safely and efficiently review the expected influx of applications and prepare them to license HALEU [high-assay low-enriched uranium] fuels," the lawmaker said.

Russia currently dominates the production of HALEU fuels, which are key for most next-generation nuclear reactors. Uncertainty about Russian supplies of HALEU has been a worry for TerraPower and a central motivation for the Nuclear Fuel Security Act, another successful NDAA amendment.

"We spend nearly $1 billion each year on Russian uranium. Russia uses these revenues to fund its invasion of Ukraine," Sen. John Barrasso (R-Wyo.) said in the Senate as the measure was under consideration.

Sen. John Barrasso (R-Wyo.) in Washington on Dec. 1, 2020. (Bill O'Leary-Pool/Getty Images)

'Decarbonize Beyond Electricity'

Other speakers at the event expanded on how nuclear energy could be used to cut carbon emissions.

"We need to decarbonize beyond electricity," said John Wagner, director of the Idaho National Laboratory. He cited industrial heating and hydrogen production as examples of such applications for nuclear energy.

Sama Bilbao y León, director general of the World Nuclear Association, concurred.

"Yes, we need to electrify as much as we can of our economy, but it is not going to be possible to electrify everything," she said.

Ben Pickett of Nucor Corporation, which operates mills that recycle scrap steel using electric arc furnaces, explained that his company's operations require "billions and billions of kilowatt hours per year."

Earlier this year, Nucor signed a memorandum of understanding with NuScale Power. The latter could potentially develop small modular reactors for use in conjunction with Nucor's steel production facilities.

"We've got customers now that are demanding much cleaner steels," Mr. Pickett said.

He conceded that the idea of running steel production on advanced nuclear has met with a "mixed" reaction in his industry.

Tyler Durden Sun, 09/24/2023 - 15:00

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Zelenskyy Asks Spirit Cooker Marina Abramovic To Be Ambassador For Ukraine, Help ‘Rebuild Schools’

Zelenskyy Asks Spirit Cooker Marina Abramovic To Be Ambassador For Ukraine, Help ‘Rebuild Schools’

Authored by Chris Menahan via Information…



Zelenskyy Asks Spirit Cooker Marina Abramovic To Be Ambassador For Ukraine, Help 'Rebuild Schools'

Authored by Chris Menahan via Information Liberation (emphasis ours),

Ukrainian president Volodymyr Zelensky is recruiting spirit cooker Marina Abramovic to serve as an ambassador for Ukraine and help "rebuild schools."

From The Telegraph, "Zelensky asks Marina Abramovic to be ambassador for Ukraine":

Volodymyr Zelensky has asked Marina Abramovic, the performance artist, to be an ambassador for Ukraine.

‌Ms Abramovic, a fierce critic of Vladimir Putin's illegal invasion, said the Ukrainian president had asked for her help in rebuilding schools.

[...] ‌"I have been invited by Zelensky to be an ambassador of Ukraine, to help the children affected by rebuilding schools and such."

‌She added: "I have also been invited to be a board member of the Babyn Yar organisation to continue to protect the memorial."

‌The Holocaust memorial centre to Jews murdered by Nazis in Ukraine was damaged by Russian missile attacks in March last year.

The "bombing" of the Babyn Yar memorial was confirmed to be a lie last year.

‌Ms Abramovic installed her work Crystal Wall of Crying at the memorial centre in Kyiv four months before Russia invaded Ukraine in February 2022.

‌The wall, 40 metres long and three metres high, is made of coal and has large quartz crystals sticking out of it. Visitors can touch the installation, which mirrors the western wall in Jerusalem.

Zelensky said last year his goal is to turn Ukraine into a "Greater Israel."

In Dec 2022, Zelensky made a deal with BlackRock's Larry Fink to help "rebuild" Ukraine after the war and just last week the Biden regime announced Penny Pritzker would become their Special Representative for "rebuilding" Ukraine.

Meanwhile, Abramovic's pals, the Clintons, are also salivating over helping to 'rebuild' Ukraine.

Tyler Durden Sun, 09/24/2023 - 16:10

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