The Economy’s Weekly Recap

10/27/23 - 11/3/23

Raymond Lin

This Week’s Prominent Events

Microsoft’s AI Assistant

• Earlier this week, Microsoft announced that its generative AI assistant Copilot is now generally available. This AI assistant will be able to compose emails, answer user questions, and perform actions in windows, which is expected to help boost productivity and simplify processes for workers. 

• Unfortunately, Copilot is only for companies that are willing to pay for more than 300 licenses, each of which are $30 a month. This means that ordinary consumers are not able to gain access and that interested companies must shell out a minimum of $108,000 annually to use copilot. 

• Despite these limitations, analysts at Piper Sandler have predicted that Copilot will generate more than $10 billion annually for Microsoft by 2026. Already, 40% of fortune 100 companies are testing Copilot. 

• Some Copilot using companies that Microsoft CEO Satya Nadella mentioned by name were Bayer, KPMG, Mayo Clinic, Suncorp, and Visa.

An Amusement Park Merger

• Amusement park companies Six Flags and Cedar Fair are merging in a deal worth $8 billion. The new company will still go by Six Flags, but will use Cedar Fair’s stock ticker(FUN). 

• This merger will create a combined company with 27 amusement parks, 15 water parks, and 9 resorts in North America. These properties are geographically different, which means that seasonal dips in some properties can be accommodated for by others. 

• This deal is expected to help them deal with the sluggish amusement park growth of the last few years by permitting cost savings and increased investment. The new company is expected to save $200 million due to administrative and operational savings. 

The UAW Strike Ends

• The United Auto Workers union has reached tentative deals with Stellantis and GM this week after reaching one with Ford last week. This means that the strike has finally ended, with workers returning to work and the ratification via voting starting soon. 

• The 4.5 year long contracts signed, which will last until April 2028, are very lucrative and an immense success for the UAW. At all 3 big automakers, major concessions have been won, such as…

  • An 11% immediate increases in the top hourly wage.

  • Future pay hikes over the course of the contract, totaling to a 14% increase.

  • The return of cost of living adjustments for wages

  • Faster job elevation with workers reaching top wages in 3 years rather than 8.

  • The right to strike over plant closures

  • Improved retirement benefits.

• This success has seemingly emboldened the UAW, which has expressed interest in expanding its membership to non-unionized automakers like Tesla and Toyota. Likely in response to this, Toyota raised its top wages by 9% to disincentive workers from joining the UAW. However, it remains to be seen whether the UAW will be successful in growing and providing more power to workers.

The End Of The FTX Saga

• Sam Bankman-Fried, the former CEO of FTX who was accused of mismanaging and using billions of customer funds, has been found guilty on all charges. These charges are seven counts of fraud and conspiracy, totaling to a max of 110 years in prison. 

• Even if he doesn’t face the max though, he will still likely be in prison for most of, if not all of, the rest of his life. We will find out the length of his prison time after his sentencing on March 28, 2024. 

• Until then, he will be kept in the notorious Metropolitan Detention Center, where he has been kept with the drug trafficking former president of Honduras and the also drug trafficking former head of Mexico’s FBI.

WeWork Bankruptcy

• WeWork is another example of incompetence in multibillion dollar companies. While it was once valued at $47 billion by Softbank, it is now likely to declare chapter 11 bankruptcy with its stock down 99% YTD. 

• This revelation comes from Reuters and the WSJ citing sources familiar to the matter, but it really isn’t a surprise. Higher borrowing costs and a weak commercial real estate market have meant hard times for WeWork, especially with their questionable business model. 

• Besides the immense losses investors in WeWork have experienced, other people are going to be negatively affected by the bankruptcy of WeWork. The scaling down WeWork will experience will lead to a drop in demand in a number of offices around the country, furthering losses in commercial real estate demand and hurting building owners severely. 

Future Events

Interest Rates Are Left Unchanged

• The battle to defeat inflation has been raging for well over a year now, with interest rates and associated borrowing costs increasing greatly since 2022. However, recently, the Federal Reserve has taken a more measured and indecisive approach to interest rates. 

• Furthering this, the Federal Reserve decided this week to hold interest rates at 5.25%-5.5%, showing that the Fed is uncertain about whether more hikes will be needed. 

• The Fed’s rationale is understandable. On one hand, inflation is significantly above the 2% target set by the Fed. Additionally, the economy and labor markets are still doing great and would likely prove resilient. On the other hand, more interest rate hikes could hinder and even damage the economy, pushing the country into recession.

• There are too many uncertainties and very dire possibilities associated with raising interest rates, likely leading the Fed to just hold them as they are.

Biden’s AI Executive Order

• AI will revolutionize the economy and society as a whole. While that statement may seem like some shady attempt to make you form over money, it is something that is undoubtedly true. AI will add a dimension of productivity and uncertainty that we have never seen before by automating processes and creating disruptive change.

• That reality is what spurred President Biden to issue an executive order for the government to help manage AI. Some of the things in this executive order include…

  • Forcing companies to share safety results and other important information with the government. 

  • Creating rigorous safety standards and tools to understand the impact of AI.

  • Protecting Americans from AI-based fraud and deception via safety standards and AI content detection.

  • Spreading the use of AI in the government.

  • Creating a national security document about the usage of AI militarily.

• It has already been pointed out that some of these goals will be very difficult to achieve, especially with tech companies poaching all the AI talent with high wages the government is unlikely to match. 

• It has also been remarked that Congress needs to pass more in depth legislation to properly address and regulate AI, although that will also be difficult given the partisan divide.

Women In Business

• New data shows that more than half of full time MBA students at top 5 business schools are women. Even when taking a broader look, 42% of people obtaining MBAs are women. While this does reflect the trend of more women than men in higher education, it is still a significant development in a seemingly male dominated industry. 

• The greater number of women obtaining business education will serve as a pathway to greater opportunities and status of women. It will help bridge the gap of women in leadership positions. For example, women still only run about 10% of fortune 500 companies, a figure that may grow in the future thanks to greater female MBA enrollment. 

• All in all, this is not only a good thing for diversity and those women, as a BlackRock study found that companies with a fairly equal representation of women and men outperform less diverse/much more diverse companies. 

Weekly Question

True or False: Women hold 22% of top executive positions

False. Women held 31.7% of top executive positions in 2021, up significantly from 27.1% in 2015. Keep in mind that this takes into account small businesses with more female entrepreneurs, making the percentage of women as leaders higher than in Fortune 500 companies.