THE MARKETS

📈 Equity markets fell for a second straight week, as profit-taking, weak seasonality, and inflation data took their toll.

💼Economic News

Consumer prices in China — the world’s second-largest economy — have slipped into a deflationary period for the first time in two years. This news comes amid a drop in exports, record-high youth unemployment, and a down housing market.

Speaking of struggling housing markets, the US housing market is currently experiencing one of its most unaffordable phases to date. This is largely due to the fact that nearly 90% of homeowners have a mortgage rate under 6%, while the current 30-year fixed-rate mortgage stands at just over 7%. As a result, most homeowners are choosing to stay put in order to avoid taking on a higher monthly payment. At the same time, homebuilders are racing to get new homes on the market, but that is a slow process.

The median home sale price remains at $416,000, approximately $100,000 higher than pre-pandemic levels.

👀 What to Be on the Lookout for This Week

There are plenty of economic reports to look out for this week, including:

• Retail sales

• NAHB Housing Market Index

• Business inventories

• FOMC minutes

• 30-year fixed-rate mortgage

• Initial jobless claims

• Continuing jobless claims

Additionally, be on the lookout for these earnings reports:

• Monday: Monday.com

• Tuesday: Home Depot, H&R Block

• Wednesday: TJX Companies, Target

• Thursday: Ross Companies, Deere & Company

• Friday: Tapestry, Xpeng, Palo Alto Networks

📰 In Other News

Today’s world seems to be especially divided on a number of different issues. But every now and then, a headline comes along that everyone can celebrate. 

The Federal Communications Commission, or FCC, fined a robocall company $300 million for running the largest illegal robocall operation in history. The FCC also told phone companies to block the numbers it used, which has already decreased spam calls by 99%.

In old-school news, Berkshire Hathaway — led by investor-extraordinaire Warren Buffet — just posted its highest-ever operating profit: $10 billion. It also increased its cash pile to $147 billion. Over the past few years, Buffet has demonstrated time and time again that his value-driven strategy can easily outperform buzzy investments. 

In new-school news, Paypal announced a new stablecoin that will be linked to the US dollar. Stablecoins — or cryptocurrencies designed to be more stable in price — aren’t new. They’ve already been rolled out by dozens of smaller crypto companies. But, with 426 million active accounts, Paypal is the first major financial company to launch one. This news could be just what the stagnant crypto market needs.

Additionally, Tapestry Brands — the owner of Kate Spade, Stuart Weitzman, and Coach — made headlines by acquiring Capri Holdings for $8.5 billion. Capri owns Jimmy Choo, Versace, and Michael Kors. With six major brands coming under one roof, this merger has the potential to create a fashion powerhouse. 

On the subject of mergers, Barstool Sports and PENN Entertainment have decided to part ways, reversing their previous merger. Instead, PENN is now set to launch a $2 billion deal with ESPN to develop a sports betting app, ESPN Bet.

Reflects performance at market close 8/11/23

INFLATION UPDATE

🏘️ Shelter Costs Drive Inflation up a Pinch

July’s Release

The Consumer Price Index — one of the most widely watched measures of inflation — rose to 3.2% in July. This was slightly above the 3% inflation rate in June, but slightly below what analysts were expecting. Core CPI inflation — which excludes more volatile items like food and rent — fell to 4.7% from 4.8% the month prior. 

Almost all of the monthly inflation increases can be attributed to shelter costs, which were up 7.7% from a year ago, as well as rents up 0.4%. According to the Bureau of Labor Statistics, roughly 90% of the increase in overall inflation came from this category.

On the flip side, food prices only rose 0.2% monthly, while energy prices increased just 0.1%. Meanwhile, used vehicle prices dropped 0.1%, while airline tickets tumbled 8.1%. 

Inflation is the rate at which goods and services rise in price over time. So, a monthly inflationary measure of 3.2% means that, on average, the prices of goods and services are 3.2% higher than last year. It’s important to keep an eye on the rate of inflation, as this metric impacts everyone living in the US. If you are not consistently receiving raises from your employer or investing money and letting it grow over time, inflation can dramatically reduce your purchasing power.

What Does This Mean?

Despite the slight monthly bump in July, inflation has made significant progress over the past twelve months. Generally speaking, inflation has been easing for the better part of the last year, due primarily to the Federal Reserve’s policy decisions, as well as the waning impacts of the pandemic. 

At this time last year, inflation was hovering around 8.3%, and prices for many goods were spiking out of control. The Fed was faced with the precipitous task of lowering inflation without throwing the US into a recession. 

The central bank’s series of interest rate raises poses a challenge for consumers carrying credit card debts or potential homebuyers looking to sign a mortgage. However, since the Fed started making its hikes, inflation consistently declined for the next 11 months, reaching a low of 3% in June.  

July was the first time in months that the rate of inflation increased on a monthly basis. Although the increase was mild — just 0.2% — this is still a cause for mild alarm among economists, and may be taken as a sign that the Federal Reserve should continue raising rates throughout the rest of the year.

Looking Forward 

Inflation has decreased significantly since hitting its 40-year high of 9.1% in mid-2022. Despite this, inflation still sits considerably above the Federal Reserve’s 2% target rate.  

Headline CPI is roughly 1.2% above the Fed’s target rate. More concerningly, Core CPI remains about 2.7% above the Fed’s target rate. 

Nevertheless, the Federal Reserve is widely expected to take a break from raising rates in September, after raising rates 11 times since March 2022. That said, another rate hike in 2023 is well within the range of outcomes.

YOUR ECONOMY

🛍️ The End of Ultracheap Goods?

An Overseas Generation Gap is Threatening Cheap Prices 

For the better part of the past three decades, US consumers have become accustomed to big-box retailers such as Walmart and the low-priced goods they offer. But this reality is in jeopardy thanks to the large-scale social changes, including generational shifts in lifestyle and preference taking place in major manufacturing hubs like China, Vietnam, and Malaysia.

The ability of Americans to enjoy the low prices they’ve grown accustomed to hinges on the availability of cheap labor overseas, mainly in Asia. However, younger workers in many Asian countries are increasingly less interested in pursuing factory work.

A Changing Workforce

In China and Vietnam, for instance, younger generations actively pursue roles as store attendants, hotel receptionists, and freelance work. These jobs offer more than just a comfortable work environment. They entail a life beyond the repetitive and boring tasks of a factory.

At the same time, factories are making concerted efforts to appeal to these workers. Factory wages in Vietnam have more than doubled since 2011, which is over three times the rate of wage increase in the US. Similar wage hikes have occurred in China, with wages rising by 122% from 2011 to 2021.

In fact, several garment factories in Asia have gone to great lengths to make their jobs more appealing, going beyond just offering higher wages. These efforts include providing in-house cafes and free yoga classes. 

Nevertheless, many young workers are choosing to become their own bosses through opportunities like driving for ride-share companies. This trend is not limited to Asia — the younger generation all over the world is seeking jobs that provide a better balance between work and life.

Rising Prices Incoming? 

Overseas, this shift has been gradual. But, stateside, it is radically changing the globalization model that has allowed the West to enjoy low-priced goods over the past few decades. Many companies have already highlighted how the overseas labor shortage is leading to higher prices. For example, Hasbro, Barbie, and Nike have all attributed price hikes to a shortage of factory workers.

In the past, the solution would typically be to simply relocate manufacturing to countries where labor was cheaper. Indeed, many companies are looking at several countries in Africa and South Asia that could be viable alternatives. However, with political instability, a lack of suitable infrastructure, and a shortage of trained workforces, the cost of relocation is much higher today than in years past.

Similarly, we may gradually see if the changes in wages and perks are enough to lure young workers back to factory roles. But, in the meantime, Americans might want to start mentally preparing for the end of the Era of Ultracheap Goods.

👔 Has America Become an Anti-hustle Culture?

Employee Unrest on the Rise

Since its founding, America has been built on the idea that if you work hard, you can get ahead financially. But, for many younger Americans, this “American Dream” is fading.

The post-pandemic workplace has been defined by a series of trends — all of which seem to involve employees doing the bare minimum. The first was “quiet quitting.” Then, “bare minimum Monday.” Now, "acting your wage” is gaining steam, in which employees at minimum wage jobs refuse to do work outside their responsibilities. 

On top of that, tensions are growing increasingly higher between workers and employers as dozens of union negotiations veer toward (or narrowly away) from strikes. For example: 

Hollywood actors and writers are on strike simultaneously for the first time in decadesThousands of Los Angeles city workers walked off the jobThe United Auto Workers union is threatening a strikeUPS and its 300,000 members only just avoided a strike after ensuring average full-time salaries of $49 per hour

Regardless of their industry or stature, workers across the country are getting fed up.

What’s Going On?

For older generations, there was a tried and true order of operations. Study hard. Go to college. Land a job. Work hard. Retire with a pension. 

But, for many millennial and Gen Z workers, “studying hard” has mainly led to a hefty student loan debt, and “working hard” has led to a job that can barely cover a studio apartment in their city. Accordingly, younger generations are starting to rethink their attitude toward the working world. 

Instead of working hard for the promise of a raise or promotion, young workers are adopting the opposite mentality. They’re putting in a level of work on par with what they’re being paid. So, if they’re getting paid minimum wage, they’re performing the minimum level of work. Plus, instead of trying to get ahead in the workplace by working longer hours and taking on extra responsibilities, younger workers are simply punching the clock and prioritizing life outside of work.

Slacking off in the workplace might have once been a shameful act. But today, there’s a growing movement of workers taking pride in doing the least. Examples abound on r/antiwork, a Reddit forum with 3 million users who routinely post prideful stories of sticking it to their employers.

Rediscovering the Work/Life Balance

At the end of the day, this shift in worker attitude can most likely be attributed to workers' rights. If employees felt they were being compensated and treated fairly, there’s a good chance they’d show up to work singing a different tune.

While these trends suggest an overarching change in the workplace might be needed, there’s also plenty for younger workers to get excited about right now.

For example, the rise of remote work means upcoming generations will have a level of work flexibility other generations never got to enjoy. In fact, this rise of remote and hybrid work has led to some of the highest worker satisfaction in decades, according to the data from the Conference Board.

With all that said, as tensions reach a tipping point, both employees and employers will need to work together to rediscover the fine line between work and life. 

POCKET CHANGE

Nearly 70% of parents spend 20% of their budget on childcare. This is well above the 7% considered affordable by the U.S. Department of Health and Human Services.

Apple’s newest iPhone, the iPhone 15, is scheduled for release on September 22. The event will likely be widely watched by consumers and analysts alike.

Zoom is enforcing a “structured hybrid approach” for its employees. The de facto return-to-office mandate calls for employees who live near an office to be onsite for two days per week.

Families with kids in school will spend an average of $890 on back-to-school shopping this year, per the National Retail Foundation. 31% of parents also expect inflation to play a major role in their shopping.

Spiked beverages have expanded beyond seltzers. Today’s 21+ consumers can find alcoholic versions of favorites like SunnyD, Topo Chico, and AriZona Iced Tea.