The Economy’s Weekly Recap

11/10/23 - 11/17/23

Raymond Lin

This Week’s Prominent Events

A Crisis Averted… Again

• The government has once again managed to pass a continuing resolution(CR), which is a short term government funding bill. This means that the government will not be shutting down soon and will have time to work out its budget. 

• However, this CR is unique because it has a two tiered structure where some government programs, such as veterans affairs, transportation, housing, and the energy department, have funding until January 19 and some other programs have funding until February 2.

• While the passing of this CR is good news, there is cause for concern. The vote for the CR was 336 to 95, with 209 Democrats and 127 Republicans voting for the CR. There remains a staunch extreme end of the Republican party that is unwilling to cooperate, which means future budget negotiations may be in jeopardy or experience serious revisions. 

Stellantis’ Buyout

• Stellantis has announced buyouts, voluntary separation packages, for white-collar non-union employees with more than 5 years of experience. This makes up about 6,400 employees and half of Stellantis’ US white-collar employees. Stellnatis is offering…

  • Workers with 5-9 years of experience 3 months of base pay

  • Workers with 10-14 years of experience 6 months of base pay

  • Workers with 15-19 years of experience 9 months of base pay

  • Workers with over 20 years of experience 12 months of base pay

• These buyouts demonstrate the cost cutting efforts of automakers as they face high interest rates and higher labor costs. Additionally, the buyouts, while not a new trend in the automotive industry, may have been spurred on by the UAW strike.

• The UAW strike and subsequent deal, which has already caused $3.2 billion in lost revenue to Stellantis, will lead to higher labor costs and thus lower profits for the company, which may have contributed to the recent move to buyout other employees.

Emirates’ $52 billion Purchase

• When a company spends $52 billion, it is usually for an acquisition or some large investment. However, with aviation traffic reaching 97% of pre-pandemic levels and experiencing strong growth recently, the airline company Emirates has ordered 205 aircraft: 90 Boeing 777 aircraft, 55 of them 777-9 variants and 35 of them 777-8s. 

• Collectively, these are worth $52 billion dollars, which will be a serious boon for Boeing. Additionally, Boeing has had renewed success with its once disastrous and fatal Boeing 737 Max. 

• Ethiopian Airlines has ordered a Boeing 737 MAX about 5 years after a previous one Ethiopian Airlines had crashed and killed all passengers and crew onboard. 

• China has also begun to consider resuming purchase of 737 MAXs, according to people familiar with the matter.

ExxonMobil’s Lithium Investment 

• Lithium is a crucial metal in the production of phones, computers, and EV batteries, and it will only become more important as we transition to EVs and renewable energy. For example, US lithium battery demand is expected to surge sixfold by 2030. In the face of this growth, the energy giant ExxonMobil has started to drill for lithium.

• Exxon already has the rights to drill in 120,000 acres of land in Arkansas and plans to start production in 2027. It plans to produce enough lithium by 2027 to meet the needs of 1 million EVs a year.

• While experts are viewing it skeptically, Exxon’s efforts and possible success should definitely be watched closely as it could help bring the US into the forefront of the production of thai vital metal.

Retail Sales Decline

• For the first time since March, retail sales have decreased month to month as US retail sales fell 0.1% in October when compared to September. 

• This has been long coming as interest rates hikes and strong consumer demand had to come to a head eventually. This means that, even though it will soon be the holiday season, economic growth and consumer demand is likely to taper off. 

• One company that has been affected by this already is Walmart, which fell 7.7% in value as it gave a lower than expected forecast for the fourth quarter. 

Future Events

A High Profile Dinner

• Earlier this week, a dinner was held in San Francisco for visiting Chinese President Xi Jinping. Some of the dinner’s attendees were BlackRock CEO Larry Fink, Apple CEO Tim Cook, Tesla CEO Elon Musk, BlackStone CEO Steve Schwarzman, Bridgewater Associates’ Ray Dalio, and many other notables.

• The primary purpose of this congregation was to rub elbows with Chinese officials and to see what President Xi would have to say about the US-China relationship. 

• Unfortunately, President Xi  offered limited insight into his plans. There were no mentions of trade, investment, or assurances for US businesses. Instead, there were only mentions of possible cooperation and diplomacy, signaling that the Chinese government would not change its stances any time soon.

October’s Inflation

• David Mericle, Chief US economist at Goldman Sachs, summarized October’s inflation well: “The hard part of the inflation fight now looks over”. To bring you up to speed, CPI was flat in October and only 3.2% year over year. Meanwhile, Core CPI, which strips out the volatile food and energy items, only rose 0.2% monthly and 4% year to year. 

• No matter how you slice it, it seems that inflation is finally truly settling down. Additionally, when taking into account weaker consumer demand and decreases in stubborn costs like shelter, one can optimistically expect even weaker inflation moving forward.

• However, while this may paint a lovely picture, one should remember that the Federal Reserve will act cautiously and will refrain from decreasing interest rates in the near future. Additionally, inflation is still above the target of the Federal Reserve, which means we will still have to suffer from high interest rates and inflation, both of which have already had a marked effect and already painfully impacted people. 

Climate Change’s Devastating Impact

• In 1980, an extreme weather event that caused more than $1 billion in 2023 dollars occurred every 4 months. Now, it occurs every 3 weeks. This increased frequency, and often severity, led the  U.S. National Climate Assessment to conclude that extreme weather events cost the US $150 billion in damages. 

• But it gets worse because this figure is a conservative estimate of the true damages. There are many indirect effects on things like food prices, medical expenses, insurance, etc. 

• Additionally, this problem may only worsen in the future. Local industries like farmers, fishes, or ski resorts may begin to experience more stress, resulting in the destabilization of local economies and suffering of those in the working class as they are often more susceptible to extreme weather related disruptions. 

• The Fifth National Climate Assessment, which is compiled by 13 federal agencies, also gives further evidence of climate change related damages. It warns that we are behind on our climate goals and that climate change exacerbates existing inequality, worsens people’s health, reduces economic growth, and increases migration from Mexico.

• There have been some moves in the right direction, such as existing legislation and Biden’s recent $6 Billion investment to strengthen climate resilience, but more can and should be done to preserve the US economy and people. 

Weekly Question

How often has the government shutdown on average since 1980?

• A: Once per 10 years

• B: Once per 5 years

• C: Once per 3 years

• D: Once per 7 years

Answer: C. The government has shutdown 14 times since 1980, meaning that a shutdown, on average, happens every three years.