The Economy’s Weekly Recap

1/5/24 - 1/12/24

Raymond Lin

This Week’s Prominent Events

An Aviation Headache

• In recent years, the aviation company Boeing has experienced difficulties creating a good public image and growing its business. Much of this comes down to quality and developmental failures in their planes, which, for example, killed 346 people in two separate 737 Max crashes in 2018. This then led to groundings of the 737 Max, ultimately costing Boeing more than $20 billion.

• Furthermore, these kinds of failures, while usually not as severe or fatal, have occurred consistently. The 787 Dreamliner was delayed twice in 2021 and 2023 due to FAA quality concerns. 777s were grounded after an engine failure led to engine debris being spread onto homes. A piece of internal communications released during the 737 Max grounding describes Boeing well: “designed by clowns, who in turn are supervised by monkeys.”

• This reputation has been compounded this week as Alaska Airlines flight 1282 experienced the door plug being blown off the plane last Friday. This led to 737 Max 9s, which was the plane Alaska Airlines flight 1282 was on, being grounded for “extensive inspection and maintenance” according to the FAA. This kind of failure jeopardizes the safety of passengers, the stability of airlines, and the success of Boeing, with this embarrassing display of ineptitude reinforcing Boeing’s recent poor reputation. In response to this incident, the FAA has also promised to increase production oversight and audit  737 Max 9 production.

• This kind of failure, assuming it continues, will likely lead to Airbus becoming even more prominent in the aviation industry, solidifying their current lead over Boeing in terms of deliveries. Boeing’s failures will possibly cause a prolonged negative effect on its financial success and stock performance. 

ChatGPT Store

• OpenAI, the company behind ChatGPT, launched two new products this week: ChatGPT Team and GPT Store. 

• ChatGPT Team is a scaled down version of ChatGPT Enterprise and is intended for teams of 150 people or so, possibly helping ChatGPT another part of the potential market for generative AI. 

• The more interesting product, however, is the GPT Store. After having been delayed two months, the GPT Store will allow users to share which are called GPTs, custom versions of ChatGPT. This would make it easier for users to find and utilize specialized versions of ChatGPT, such as Khan Academy’s GPT that helps people learn how to code or AllTrails.com’s hiking trail recommendation GPT.

• The GPT Store will include a community leaderboard for downloads as well as categories like writing, lifestyle and education. Furthermore, OpenAI plans to have a revenue sharing model to reward those who create and publish popular GPTs, although specifics have yet to be announced. 

• These new products may help OpenAI consolidate its position in the ever competitive generative AI space, where it faces Meta, Google, and an assortment of other competitors. 

HPE’s Acquisition

• Hewlett Packard Enterprise(HPE), the enterprise oriented data center company that split from the printer and computer segment of the old HP conglomerate in 2015, has announced the acquisition of networking equipment company Juniper Networks for $14 billion in an all-cash deal. 

• The deal will bolster HPE’s networking offerings and expand its usage of AI, helping “bridge the AI-native and cloud-native worlds” according to CEO and President of HPE Antonio Neri. HPE has also said that its existing networking business would be doubled by the acquisition of Juniper.

• A possible trouble spot will likely be regulatory approval, as regulatory scrutiny has postponed and blocked several deals recently: Microsoft’s acquisition of Blizzard Activision, Broadcom acquiring VMware, Amazon attempting to acquire the much smaller company iRobot, and Adobe failing to acquire Figma.

• As a result, despite HPE’s acquisition being fairly small, there is a high chance it faces intense scrutiny, which is likely why HPE has floated the expectation that the acquisition might close in 2025. 

Natural Gas Merger

• Chesapeake Energy and Southwestern Energy, two of America’s largest natural gas companies, have announced an all stock merger worth $7.4 billion. 

• This merger would create a $24 billion company that would be able to better challenge rivals like Chevron and EQT by becoming one of the largest US energy producers. The new larger company will have an improved position in regards to unlocking and securing natural gas opportunities. 

• The companies expect the deal to close in June 2024 when accounting for regulatory security and shareholder approval. The resulting company will be given a new name. 

• This deal occurs with the background of major energy corporate consolidation as Chevron’s acquisition of Hess and Exxon Mobil’s acquisition of Pioneer Natural Resources occurred only a few months ago. However, this deal is interesting in that it reflects renewed success for Chesapeake Energy, which declared bankruptcy in 2020 but has managed to find success in its natural gas investments after shedding off debt and calibrating its priorities.

A New ETF

• Earlier this week, the SEC approved Bitcoin ETFs to be sold to the public. To be more exact, the SEC approved 11 applications by asset managers like Fidelity, ARK, BlackRock, and others for spot Bitcoin ETFs. These spot Bitcoin ETFs actually buy and sell bitcoin, which means they are different from the existing bitcoin futures that merely track the movement of Bitcoin’s price.

• This news triggered excitement among bitcoin enthusiasts as expectations of tens of billions flowing into the Bitcoin ETF market were spread. This has cemented the belief among enthusiasts that Bitcoin will only become more mainstream as people’s portfolios become exposed to it and it is normalized, even as SEC chair Gary Gensler said that “Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto”.

Future Events

Global Economic Slowdown

• The World Bank has released a report on the prospects of the global economy, and it is quite bleak. The World Bank found that the last 5 years of GDP growth have been the slowest in the last 30 years, with even the Great Recession seeing more global growth. 

• Furthermore, this lack of growth will continue in the near future. Global GDP growth is predicted to be just 2.4% in 2024, down from 2.6% in 2023 and 3% in 2022. All of these figures are lower than the average of 3.1% during the 2010s, suggesting slow growth for the 2020s.

• This economic slowdown will lead to many of the 2030 development goals from 2015 failing as progress in poverty, education, world hunger, and greenhouse gas emissions slows to a crawl. 

• Developing countries have been especially hard hit by this slow growth, with their economies expected to grow just 3.9%, a whole percentage point lower than the average of the 2010s. Furthermore, 25% of developing countries are poorer now than at the eve of the pandemic. 

• Wealthier countries are still struggling though, with US growth slowing from 2.5% in 2023 to predictions of 1.6% in 2024. The Eurozone has done even worse, with 0.4% in 2023 and 0.7% in 2024. China’s 4.5% in 2024 might look better, but China is still experiencing its slowest expansion in 3 decades. 

December’s Inflation

• December’s CPI inflation data was released this week. While not bad, it has somewhat derailed hopes of interest rate cuts in early 2024. This has occurred because CPI inflation in December was 0.3% higher than November and 3.4% higher than December 2022. This is a gain from November’s data of 0.1% monthly and 3.1% yearly rise.

• This slight uptick in inflation, while not shocking, makes the Federal Reserve’s job harder. They have to balance inflation and economic growth with interest rates, and December’s higher inflation suggests that the Fed might choose to delay interest rate cuts until later in 2024 to continue bringing down inflation, hindering economic growth in the short term.

The US’ Budget

• As the Jan. 19 and Feb. 2 deadlines for the US budget come closer, the actions of politicians in the House of Representatives must be watched attentively. So far, the Republican House and Democrat Senate have managed to agree on spending $1.59 trillion in 2024, with $886 billion for the military and $704 billion for nondefense spending. This is a 3% increase in military spending and less than 1% for nondefense. 

• However, how this money is allocated still needs to be negotiated. Given that issues like border reforms and aid to Ukraine, Israel, and Taiwan are up in the air, it is possible negotiations may take an extended period of time. Furthermore, some hard line Republicans have begun openly resisting efforts to compromise on the budget. They cite dissatisfaction with the current deal and the compromise with Democrats as problems that House Speaker Mike Johnson has failed to address. 

• Whether these Republicans can unseat Mike Johnson like they unseated Kevin McCarthy and whether the US can find a suitable compromise to prevent a shutdown will be something to observe attentively in the near future. 

Weekly Question

True or False: Boeing’s stock is down 9% over the last five years

Answer: False. Boeing’s stock is down around 40% in the last five years, reflecting poor performance and public perception.