Financial and Economic News: September 8, 2023

economy financial news inflation Sep 08, 2023

Employee Motivation Takes a Hit 

First up on my radar, it seems like a lot of American workers are not as gung-ho about their jobs as they were last year. That’s according to a survey conducted by the ADP Research Institute, where employees scored the lowest score for motivation and job commitment since June of 2022. Now, it’s a fairly novel assessment tool, but what it means is that, when this ADP score is over 100, employee motivation and morale is high, but when it low, it's a sign that workers might not be satisfied or feel very engaged with their work. Specifically, the survey also found that people who were more productive actually felt more positive about their work, but that only 4 in 10 employees were above average when it came to productivity. They also found that people who worked in tech and IT were more motivated than individuals who worked in fields like education and transportation. 

Now, why is this so important to talk about? Well, from a business perspective, there are obvious implications for productivity, because employees who are less motivated tend to feel less creative, leading to a drop in efficiency and output. And in the long-term, there may be some impact on overall economic growth, but I have to agree with the experts and echo that I don’t think changes in motivation and engagement are going to be immediate or severe. 

It's important to keep in mind that motivation naturally fluctuates over time and the labor market is a complex web of intricate factors. Instead, let's focus on why this could be a positive revelation. See, what this survey tells me, as someone who works in consulting and who has to be able to identify opportunities for positive change, I know that addressing these challenges can lead to positive outcomes in the long term. It can incentivize employers to improve workplace conditions, offer competitive compensation, and invest in training and development programs. These efforts can result in a more satisfied and motivated workforce that ultimately benefits both employees and the economy by fostering higher productivity and job retention. So, while it may seem like doom and gloom, it's important to view these trends as an opportunity for organizations and policymakers to take proactive measures to enhance workplace satisfaction and productivity. 


Fed Weighs Rate Hikes

Next up, James Bullard, who was the former President of the Federal Reserve Bank of St. Louis, has spoken out, suggesting that policymakers should stick to their plan and include one more interest-rate increase this year when they revise their projections later this month. Bullard believes this would be the best approach to maintain risk management.

Right now, Fed Chair Jerome Powell is carefully assessing whether the current benchmark interest rate, which was raised to between 5.25% to 5.5% in July, is sufficient to curb demand and bring inflation back to that all important, 2% target. Just to recap, the inflation report from the end of July showed a 4.2% increase in consumer prices, excluding food and energy.

What we do know is that the Federal Reserve officials are scheduled to meet on September 19-20th to determine their policy. While futures markets currently indicate minimal chances of a rate hike, there is slightly less than an even chance of an increase at their following meeting in November.

Bullard also echoed Chair Powell's remarks at Jackson Hole, emphasizing that the battle against inflation is not yet over, as core inflation has not yet reached the 2% target. He stressed the importance of maintaining flexibility and noted the possibility that inflation could stabilize or even rise further. And if you’re feeling like there’s been a lot of back-and-forth, you’re not wrong.

From an economic perspective, James Bullard's recommendation for the Federal Reserve to proceed with one more interest rate hike indicates concerns about inflation. It suggests that there is a need to carefully manage inflationary pressures in the economy to maintain stable prices. This approach recognizes the challenge of striking a balance between controlling inflation and supporting economic growth and employment. The Federal Reserve's willingness to consider further rate hikes underscores its commitment to price stability and its readiness to take action if inflation remains a concern. Ultimately, this reflects the ongoing economic uncertainty and the central bank's cautious approach to managing the post-pandemic economy. 


Fed Doubles Economic Growth Forecast

On a related note, the US economy seems to be doing well, and Federal Reserve officials are likely going to increase their growth projection for 2023. This comes after a series of strong reports, like increased consumer spending and more investment in homes, which have led economists to revise their predictions for how much the country's economy will grow. One estimate, not officially from the Fed but closely watched, even suggests that the economy could expand by 5.6% in the third quarter of this year.

This is a big change from just three months ago when people thought the economy might slow down. The Fed might decide to change its plans for lowering interest rates in 2024 because of this good news. Some experts are saying that this strong growth is partly because people have been spending more in June and July. In fact, some expect the economy to grow by around 3.7% from July to September.

To put it in perspective, any growth in GDP (the total value of goods and services in the country) above 3.2% would be the highest in a single quarter since 2021 when the US was quickly recovering from the start of the pandemic. This is a lot better than what's happening in China, where their economy is struggling lately.

However, it's important to remember that this prediction can change, and the Fed is still being cautious. The Fed is likely to keep its benchmark interest rate steady in September. Even though the economy is doing ok, there are still some challenges ahead, like rising gasoline prices, people starting to pay back student loans again, and the looming possibility of a government shutdown. Overall, the US economy is looking strong, and this could mean better growth and fewer interest rate cuts in the future. But there are still some challenges on the horizon that the Fed is watching closely.

Stock Market Updates

Moving on, as we head into the weekend, Stock futures are continuing to decline after the release of jobless claims data. This week has proven particularly bad for Apple shareholders, who saw their market value drop by a massive $194 billion in two days following worries that China might expand its ban on iPhones.

Meanwhile the S&P 500, has seen a 0.6% decrease, and the Nasdaq 100 has also experienced a 1% drop. On the other hand, two-year Treasury bonds are providing approximately 5% in interest rates, and the U.S. dollar is gaining strength, reaching a peak not seen in six months. Abroad we’re seeing similar trends, with the Euro weakening following a slow growth period in the second quarter. And China's currency, the Yuan, has hit its lowest point in 16 years, raising further concerns about the overall health of China's economy.

And there are also changes happening in the derivatives market. Remember folks, derivatives are financial contracts whose value depends on an underlying asset. There's an organization called the International Swaps and Derivatives Association (ISDA) that wants traders to adjust the money they set aside to cover potential losses more frequently. They're planning to update their model for this every six months instead of once a year starting in 2025.

And last but not least, recent data suggests that investors have been favoring defensive stocks and utilities, which are considered safer options. Even hedge funds and other active funds have not been investing as much in high-risk "high beta” stocks, suggesting that people are being cautious with their investments and waiting for more confirmation before taking on more risk.

From an economic perspective, these statistics reflect a complex and interconnected global financial landscape. The decline in the S&P 500 and Nasdaq 100 indicates a temporary setback in the stock market, possibly due to concerns over various economic factors. The stability of two-year Treasury bond yields suggests that investors are closely monitoring government policies and interest rates. A stronger U.S. dollar can make U.S. exports more expensive and impact international trade, while the weaker euro signals challenges in the European economy. The Chinese yuan's decline may signify worries about China's economic performance, which could have ripple effects on the global economy given China's significant role as a major player in international trade and finance. Overall, these numbers highlight the intricate dance of factors influencing global economic health and the need for careful observation and analysis by policymakers and investors alike.

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