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Chart of the WeekLower Oil Reliance Insulates World From 1970s-Style Crude Shock

The war in Ukraine and sanctions on Russia are causing substantial economic spillovers, notably for energy.

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By Nico Valckx

The war in Ukraine and sanctions on Russia are causing substantial economic spillovers, notably for energy.

Oil prices have climbed, but increases have largely been contained thanks to spare production capacity in some countries and strategic petroleum reserves in others.

Brent crude, the global oil benchmark, rose to a seven-year high around $100 before the invasion sent it surging to more than $130. It has since pared gains amid pandemic lockdowns in China, the biggest oil importer, that may weigh on economic growth there.

For some, rising oil prices may echo the 1970s, when geopolitical tensions also caused fossil fuel prices to spike.

Memories of the high inflation and slow growth that followed—known as stagflation—have fueled concerns about a possible repeat. Importantly, though, times have changed.

As the Chart of the Week shows, the world relies less on oil, easing any potential shocks. Economists track oil intensity by comparing how many barrels are needed to produce $1 million in gross domestic product, and this measure was about 3.5 times higher than current levels when crude prices almost tripled between August 1973 and January 1974.

Another factor is today’s generally lower prevalence of wage-setting mechanisms that automatically adjust worker pay based on inflation. This reduces upward pressure on prices.

Central banks, too, have changed since the 1970s. More are independent today, and the credibility of monetary policy has broadly strengthened over the intervening decades.

We expect global growth to be close to the pre-pandemic average of 3.5 percent, even after our April World Economic Outlook lowered projections, but it still could slow more than forecast, and inflation could turn out higher than expected. This may be most salient for parts of Europe, given their relatively higher reliance on Russian energy imports.

 

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Spread & Containment

Stock Market Today: Dow Jones, S&P 500 Edge Higher; Trip.com Stock Surges From China Covid Easing

Markets opened in the green today as they rebound from Monday’s losses.
The post Stock Market Today: Dow Jones, S&P 500 Edge Higher; Trip.com Stock…

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Stock Market Today Mid-Morning Updates

On Tuesday, the Dow Jones Industrial Average is up by 270 points as it followed modest losses on Wall Street. Investors are still weighing the risks of red-hot inflation as rates continue to rise. Aside from the U.S., European Central Bank Leader Christine Lagarde downplayed recession concerns in the eurozone, already being destabilized by Russia’s war on Ukraine. She also says that her team is ready to raise rates at a faster pace if needed, in order to combat inflation.

Shares of Morgan Stanley (NYSE: MS), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), and Goldman Sachs (NYSE: GS) raised their dividends after passing their annual stress tests. For instance, Goldman Sachs is boosting its dividend payout by 25% to $2.50 per share. On the other hand, shares of Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN) are up today after China announced that it will be easing Covid-19 quarantine rules for international arrivals.

Among the Dow Jones leaders, shares of Apple (NASDAQ: AAPL) are up by 0.13% today while Microsoft (NASDAQ: MSFT) is down by 0.79%. Meanwhile, Disney (NYSE: DIS) and Nike (NYSE: NKE) are trading mixed on Tuesday. Among the Dow financial leaders, Visa (NYSE: V) is up by 0.17% while JPMorgan Chase (NYSE: JPM) is also up by 1.67%

Shares of EV leader Tesla (NASDAQ: TSLA) are up by 0.83% on Tuesday. Rival EV companies like Rivian (NASDAQ: RIVN) are down by 0.17%. Lucid Group (NASDAQ: LCID) is down by 1.09% today as well. However, Chinese EV leaders like Nio (NYSE: NIO) and Xpeng Motors (NYSE: XPEV) are trading mixed today. 

Dow Jones Today: U.S. Treasury Yields Inches Higher; House Price Increases Slows Down In April 

Following the stock market opening on Tuesday, the S&P 500, Dow, and Nasdaq are trading higher at 0.68%, 0.89%, and 0.31% respectively. Among exchange-traded funds, the Nasdaq 100 tracker Invesco QQQ Trust (NASDAQ: QQQ) is up by 0.28% while the SPDR S&P 500 ETF (NYSEARCA: SPY) is also up by 0.67%. 

The benchmark 10-year U.S. Treasury yield currently hovers around 3.22% as the market continues to push against a bear market. Oil prices rallied for the third day today as major producers like Saudi Arabia looked unlikely to be able to boost output significantly. This comes as the West agreed to explore ways to cap the price of Russian oil. Brent crude, for instance, currently trades at around $116 per barrel.

Home prices increased slower than before in April and could be a potential sign of a cooling in prices. Diving in, prices rose by 20.4% nationally in April compared with a year earlier. This is according to the S&P CoreLogic Case-Shiller Index. For comparison, home prices increased by 20.6% year-over-year in March. Cities like Tampa, Miami, and Phoenix continue to lead the pack with the strongest price gains. Tampa home prices, for instance, are up by a whopping 35.8% year-over-year.

[Read More] Top Stock Market News For Today June 28, 2022 

Trip.com Stock Gains Following Better-Than-Expected Quarterly Performance On Travel Rebound; China Covid Easing

Trip.com Group (NASDAQ: TCOM) seems to be among the top gainers in the stock market now. Evidently, TCOM stock is now up by over 14% at the opening bell today. Overall, this likely stems from the company’s latest financial update. Getting straight into it, Trip.com reported a quarterly loss per share of $0.01. Furthermore, the company’s total quarterly revenue is $649 million. For reference, consensus figures on Wall Street are a loss per share of $0.08 on revenue of $575.04 million. With these commendable results, investors looking to bet on the return of travel would be considering TCOM stock.

According to Trip.com, the company has recovering travel demand in global markets to thank for its latest quarterly performance. In particular, Trip.com highlights a bump in activity from consumers across its Europe and Asia Pacific user bases. This, the company believes, is a result of easing travel restrictions amidst countries in these regions. Moreover, Trip.com also notes that staycation-related travel in China is another notable contributor to growth for the quarter. Accordingly, its local hotel bookings are now up by 20% year-over-year.

On the whole, travel firms like Trip.com continue to thrive as consumers book their vacations. For its latest quarter, the company’s air-ticket bookings on global platforms are now up by a whopping 270% year-over-year. As mentioned earlier, this is mainly led by a rebound in demand from its European and Asian Pacific operations. Looking forward, CEO Jane sun notes that Trip.com will “remain adaptive to embrace the changing environment and be flexible with our strategies to swiftly seize growth opportunities.” With all this in mind, I could understand if TCOM stock is turning some heads in the stock market today.

TCOM stock
Source: TradingView

[Read More] Best Oil Stocks To Buy Right Now? 5 For Your Late June 2022 Watchlist 

Occidental Petroleum On The Rise Following Latest Berkshire Hathaway Stake Increase

Meanwhile, the likes of Occidental Petroleum (NYSE: OXY) seem to be gaining attention in the stock market now. For the most part, this is likely a result of the latest regulatory filing from Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A). Namely, Berkshire disclosed a purchase of an additional 794,000 shares of Occidental. This adds up to a $44 million transaction, bringing its total stake to about 16.4%. In total, Berkshire currently holds about 153.5 million shares of OXY stock, worth $9 billion.

All in all, Buffett’s focus on Occidental would likely draw attention to the energy firm’s shares. This is apparent as OXY stock is currently gaining by over 6% in the stock market now. According to Berkshire’s filings since March, the company’s average purchase price per share of OXY stock is $53. Following this investment, Berkshire would be bolstering its position as Occidental’s largest stakeholder. In second place on this front is investment firm Vanguard with an almost 11% stake. As a result of all this, it would not surprise me to see OXY stock making the rounds in the stock market now.

OXY stock
Source: TradingView

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The post Stock Market Today: Dow Jones, S&P 500 Edge Higher; Trip.com Stock Surges From China Covid Easing appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket.com.

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Economics

Soaring Inflation And Crashing Rates Are Sparking Trucking’s “Great Purge”

Soaring Inflation And Crashing Rates Are Sparking Trucking’s "Great Purge"

By Craig Fuller, CEO at FreightWaves

The last trucking market…

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Soaring Inflation And Crashing Rates Are Sparking Trucking's "Great Purge"

By Craig Fuller, CEO at FreightWaves

The last trucking market crash was in 2019. The current market could end up worse for small truckload fleets.

The freight market crash in 2019 was caused by two factors – a freight slowdown due to tariffs on Chinese imports and a surge of new fleets flooding the market, even as rates continued to fall. 

Until 2019, we had never seen that many new fleets enter the market, especially during a market downturn. During 2019 an average of 7,200 fleets entered the market per month compared to an average of 5,200 fleets per month during 2008-18. 

The 2019 drop in freight volumes wasn’t significant. At their deepest trough, tender volumes registered a 4.6% drop in year-over-year load requests, and that lasted for just a few short months (May-July).

Trucking is a commodity and anyone that has been around commodity markets understands that it doesn’t necessarily take a dramatic move on one side of the market to change the balance of supply/demand and cause significant price swings. 

In 2019, the trucking market already had too much capacity relative to demand. The year-over-year decline was only in the mid-single digits. But, it was enough to push rates below carriers’ operating costs.

Removing the cost of diesel from the spot rate, here is what the market looked like in 2019 (van per mile): 

  • Low: $1.51

  • Average: $1.59

  • High $1.75

We are nearing 2019’s rock-bottom, inflation-adjusted spot rates

Trucking companies have much higher operating costs now than they did in 2019, even when removing fuel from the number. Every fleet’s operating cost will be different, but using data from TCA, ACT, and FreightWaves’ own analysis, we can draw some conclusions about the cost increases that a fleet would experience in 2022 compared to 2019. 

Assuming a fleet averages 6,500 miles per truck per month and purchased a four-year-old used truck in 2019 at $50,000, plus sales tax, financed for five years at 5% interest, the monthly payment would cost around $0.15/mile. With used truck prices surging during the pandemic, a four-year-old used truck last fall would run $77,000. If the vehicle was financed with similar terms, the per mile cost would be around $0.23/mile.   

A driver employee with experience working for a top-paying fleet can expect to make around $0.62/mile. In 2019, the same driver would have made around $0.47/mile. 

Higher variable operating costs include insurance (+$.02/mile), maintenance (+$.06/mile), equipment (+$.08/mile) and driver wages (+$.15/mile).

All in, variable costs have increased at least $0.31/mile more for fleet operators in 2022 compared to 2019. These numbers are likely understated, as they don’t include increases related to back-office operations and support staff, which can vary widely among fleets. 

Adjusting the 2019 numbers, the rates per mile total: 

  • $1.82 (low) 

  • $1.90 (average)

  • $2.16 (high)

The current spot rate (net fuel) is $1.95/mile. On a variable cost-adjusted basis, the trucking spot rates have matched 2019 since May 2022 – $2.16/mile, dropping $0.21/mile. It’s likely to get worse. The month of May typically has among the highest rates we’ll see all year, with July and August being some of the weakest months. 

It is conceivable that spot rates will drop below the inflation-adjusted 2019 low of $1.82 per mile in July, since there doesn’t seem to be any near-term market catalysts to drive additional demand. 

U.S.- bound container volumes, which have been driving a substantial amount of the freight surge in the U.S. trucking market since 2020, are seeing a significant drop, as reported by Henry Byers, FreightWaves’ senior global trade analyst.  

There are also the economic challenges that are apparent in the economy, including record-low consumer confidence, declining construction and industrial activity, surging inflation, and a Federal Reserve that is determined to slow the economy down to tame inflation, even if it means putting the economy into a recession. 

All of this means that the freight market will likely encounter additional headwinds and there are more reasons to believe that trucking spot rates have further to fall.

Capacity matters

Of course, trucking is a two-sided market. Demand is only one part of the equation; capacity also matters. 

Capacity is really just a function of how much dispatchable capacity is in the market. Like 2019, the trucking industry has seen a record number of new entrants enter the trucking market to take advantage of what were strong market conditions and record high spot rates created because of government stimulus over the past two years. The number of new entrants into the trucking industry nearly doubled the 2019 monthly record average. Since 2020, the monthly average of new fleets entering trucking has increased to 13,370 per month, up from 7,200. In April, the number hit 23,479. 

This large number of new entrants means that the trucking industry has many companies that are brand new, have higher cost structures (because they joined when the freight market was peaking) and that have never experienced a downturn. 

This massive surge of dispatchable capacity was built for a market that had much more freight activity. If the economy contracts further, it could spell disaster for many of the most vulnerable operators.

The summer doldrums

Even if the economy doesn’t contract, July and August are always slower than June. It is the time of the year when supply chains take a break and get ready for the retail surges that typically begin after Labor Day. 

The retail surge is a really important part of the freight calendar and often offers some of the highest spot rate opportunities. In the first half of the year construction, auto, beverages, and fresh produce drive the surges in trucking. 

In the second half of the year, surges are caused by retailers scrambling to get inventories placed for the holiday shopping season. That may not happen this year, with many retailers’ inventories overstocked. Since their warehouses and distribution centers are full, they are reluctant to add additional inventory to their supply chain and will focus their efforts on liquidating what they currently have in stock.

Trucking spot rates will not increase significantly until the Great Purge is over

As long as the market has excess capacity, freight rates will remain depressed. It will take a substantial purge of capacity before spot market carriers can expect relief. 

FreightWaves editorial director Rachel Premack covered this topic last week in her article titled “the Great Purge.”

The unfortunate reality of trucking is that the market is often “feast or famine” and with so many new mouths to feed, the famine this year could be much worse than was experienced in 2019. 

Tyler Durden Tue, 06/28/2022 - 10:20

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Economics

CED Releases Report on Using Census Bureau Data to Boost Child Care & Employment

CED Releases Report on Using Census Bureau Data to Boost Child Care & Employment
PR Newswire
NEW YORK, June 28, 2022

NEW YORK, June 28, 2022 /PRNewswire/ — Today, CED released the fourth and final installment of its unique 2022 series that ana…

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CED Releases Report on Using Census Bureau Data to Boost Child Care & Employment

PR Newswire

NEW YORK, June 28, 2022 /PRNewswire/ -- Today, CED released the fourth and final installment of its unique 2022 series that analyzes the role of paid child care in the economy—including its impact on labor force participation. The new report serves not only as a road map for researchers to build on CED's findings. The report is also useful to policymakers as they consider key questions related to the use of paid child care—especially for women—and its connection to the workforce and economic growth.

Specifically, the new report details how researchers can effectively leverage the underlying data from the Census Bureau's Current Population Survey (CPS), which CED used as the basis for its report series about paid child care. As detailed in the primer, the CPS is a monthly survey of US households jointly sponsored by the Census Bureau and the Bureau of Labor Statistics. As part of its Annual Social and Economic Supplement (ASEC), the survey includes questions about the use of paid child care since 2001 and about such expenditures since 2010.

"Our work uncovered several groundbreaking insights, including that boosting women's labor force participation by one percent—which more paid child care could help achieve—would generate nearly $73 billion of additional income for women," said Dr. Lori Esposito Murray, President of CED. "CED's series examines data more extensively and over a long a time period than any previous work. This fourth and latest report provides a foundation for the research community to discover additional insights, which will help inform public policies that generate more prosperity for the nation's families and the economy more broadly."

The report, The Economic Role of Paid Child Care in the U.S., Part 4: Child Care Data in the Current Population Survey, a Primer, covers five key aspects of the CPS data:

  • The design of the CPS and its Annual Social and Economic Supplement;
  • What specific data the survey captures;
  • The sources from which that data comes;
  • Best practices for using the data; and
  • Likely technical issues which come with the data and how to handle them

The series is the first deep analysis of paid child care usage mined from the CPS data. Findings highlighted from the first three installments in the series include:

  • A high price tag: In 2020, the average income of families using paid child care was $149,926.
  • COVID-19's impact on participation: From 2019 to 2020, children in paid child care dropped by nearly 20 percent.
  • The primary drivers of paid child care usage are labor force attachment, household income, and educational attainment.
  • Despite declining labor force attachment across all genders, men participate in the labor force at a higher rate than women.
  • Paid child care usage is directly impacted by maternal labor force participation trends.
  • A one percent increase in the labor force participation of women ages 18-54 would produce multiple economic benefits, including an additional income of approximately $73 billion.
  • Short-term changes in paid child care correspond with three key factors: labor force participation, actual hiring of mothers, and increased income.
  • Long-term changes in paid child care correspond with three different key factors: maternal labor force, real income, and the overall total of the male and female labor force.

The prior three reports as part of this series focus on 1) the link between paid child care and income; 2) the link between child care access and mothers' workforce participation; and 3) the economic benefits of increasing women's participation in the labor force. More information on the series, which was produced with funding from the W.K. Kellogg Foundation, can be found here.

About CED

The Committee for Economic Development (CED) is the public policy center of The Conference Board. The nonprofit, nonpartisan, business-led organization delivers well-researched analysis and reasoned solutions in the nation's interest. CED Trustees are chief executive officers and key executives of leading US companies who bring their unique experience to address today's pressing policy issues. Collectively they represent 30+ industries, over a trillion dollars in revenue, and over 4 million employees. www.ced.org 

About The Conference Board

The Conference Board is the member-driven think tank that delivers trusted insights for what's ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org

 

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SOURCE Committee for Economic Development of The Conference Board (CED)

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