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    Saudi Arabia’s sovereign wealth fund overtakes Singapore’s GIC to top spending table

    The Saudi fund boosted its deal activities from a total $20.7 billion in 2022 to $31.6 billion in 2023, the research said.
    Notable overseas investments in 2023, alongside golf and soccer, included Nintendo in Japan and Vale Basic Materials in Brazil. 

    Skyline of Riyadh in Saudi Arabia.
    Simon Dawson | Bloomberg | Getty Images

    Saudi Arabia’s Public Investment Fund (PIF) was the top spender among global sovereign wealth funds last year, accounting for about a quarter of the $124 billion splashed by state-owned investors, according to a preliminary report by research consultancy Global SWF.
    The Saudi fund boosted its deal activities from a total $20.7 billion in 2022 to $31.6 billion in 2023, the research said, even as most other counterparts tapered down their spending. Overall, global sovereign wealth funds deployed 20% fewer funds compared to 2022, despite most major stock markets seeing a rally last year.

    “This may signal an overly cautious approach, as there is no shortage of capital to put to work among these institutions,” the report, which tracks activities across the world’s sovereign funds, noted. 
    “The clear winner was Saudi’s PIF, which has become a heavy-hitter both at home and overseas,” the analysts wrote. The PIF, controlled by Saudi Crown Prince Mohammed bin Salman, has total estimated assets of $776 billion. The Saudi fund has pursued frequent deals and joint ventures in its pursuit toward Vision 2030 — a plan originally launched back in 2016 which aims to increase economic diversification away from oil. Notable overseas investments in 2023, alongside golf and soccer, included Nintendo in Japan and Vale Basic Materials in Brazil. 

    Asides from PIF, four other funds from the GCC (Gulf Corporation Council) made it into the top 10 — Mubadala, the Qatar Investment Authority, ADQ and the Abu Dhabi Investment Authority.
    The PIF even surpassed Singapore’s GIC, which had led spending by wealth funds for the past six years. The Singaporean fund slashed its investment activity by 37%, in terms of volume, despite receiving one of its largest inflows from the central bank.
    The report also noted the attention given to emerging markets among several sovereign investors. 

    “In 2023 we can observe a renewed interest in emerging markets, including Saudi, Türkiye, and the UAE (with the help of domestic SWFs), and India, Brazil, China, and Indonesia,” it stated. 
    Global economies will see more sovereign wealth funds coming online in 2024, such as Hong Kong’s HKIC, Philippines’ Maharlika and Pakistan’s PSWF.
    “The formation of Dubai’s new SWF, DIF, will send shock waves and will surely attract personnel from other SWFs,” the research said. More

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    From FedEx to airlines, companies are starting to lose their pricing power

    After years of strong consumer spending, some companies are now finding the limits of their pricing power.
    Companies including FedEx, Target and General Mills have cut their sales outlooks, while airlines have slashed off-peak fares.
    Faced with slipping demand, more price-sensitive consumers, easing inflation and better supply, some companies are looking for ways to grow profits without price hikes.

    A FedEx worker delivers packages in New York, May 9, 2022.
    Andrew Kelly | Reuters

    After years of unbridled consumer spending on everything from home improvement to dream vacations, some companies are now finding the limits of their pricing power.
    Shipping giant FedEx last week said customers have shied away from speedier, pricier shipping options. Airlines including Southwest discounted off-peak fares in the fall. The likes of Target and Cheerios maker General Mills have cut their sales outlooks as more consumers watch their budgets.

    It’s a shift from the recent years when consumers spent at a breakneck pace — and at high prices — lifting corporate revenues to new records. But faced with weakening demand, more price-sensitive consumers, easing inflation and better supply, some sectors are now forced to find profit growth without the tailwind of price hikes.
    The answer across industries has been to cut costs, whether it’s through layoffs or buyouts, or simply becoming more efficient. Executives have spent the past several weeks selling these cost-cutting plans to Wall Street.
    Nike last week lowered its annual sales growth forecast and unveiled plans to cut costs by $2 billion over the next three years. Companies including Spirit Airlines, hit by a slowdown in domestic bookings and higher costs, offered salaried workers buyouts, while toymaker Hasbro announced layoffs of 1,100 employees as it struggles with lackluster toy sales.

    Spirit Airlines jetliners on the tarmac at Fort Lauderdale Hollywood International Airport. (Joe Cavaretta/South Florida Sun Sentinel/Tribune News Service via Getty Images)
    Joe Cavaretta | South Florida Sun-sentinel | Getty Images

    “I think companies are better at controlling costs than maintaining pricing power,” said David Kelly, chief global strategist at J.P. Morgan Asset Management.
    “Goods companies don’t have the pricing power they did in the pandemic, and some in the hotel and travel [industries] — they don’t have the pricing power they did in the immediate post-Covid,” he added.

    Sales growth for companies in the S&P 500 is on track to average 2.7% this year, according to mid-December analyst estimates posted by FactSet. That’s down from an average of 11% growth in 2022 over the year earlier. Meanwhile, net margins are forecast to fall only slightly year over year to 11.6% from 11.9%, FactSet said.
    “Companies are extraordinarily committed to maintaining margins,” said Kelly.
    FedEx, for example, despite its weaker sales forecast, maintained adjusted earnings outlook for its fiscal year that ends May 31. The company announced cost-cutting measures last year.

    Sector shifts

    Consumer spending has largely been resilient, but growth is slowing.
    The Mastercard SpendingPulse survey showed holiday retail spending, which excludes auto sales and travel spending, rose 3.1% from Nov. 1 through Dec. 24 of this year over the same time frame in 2022, when consumers’ year-over-year retail spending increased 7.6%. Those figures are not adjusted for inflation.
    The drag isn’t felt equally across industries.
    According to the Mastercard survey, restaurant spending rose 7.8% during the holiday period, outpacing overall gains. Executives at Starbucks, for one, say sales are still strong and customers are opting for pricier drinks, fueling sales and profits.
    Consumer spending on apparel and groceries rose 2.4% and 2.1%, respectively, from the year-earlier period, according to the survey. Spending on jewelry, however, fell 2.4% and spending on electronics dropped 0.4%, the report showed.
    Airline executives have touted robust demand through the summer as travel rebounds from pandemic halts, but fares are dropping from 2022, when capacity was constrained by staffing shortages and aircraft delays. The latest inflation report from the U.S. Department of Labor showed airfare declined 12% in November from a year earlier.

    Travelers walk with their luggage at John F. Kennedy International Airport in New York on Dec. 23, 2023.
    Jeenah Moon | Getty Images

    Southwest Airlines CEO Bob Jordan told CNBC on the sidelines of an industry event in New York earlier this month that the carrier’s fares are still up from last year, despite some discounting during off-peak travel times. The carrier has trimmed its capacity growth plans for 2024 and plans to utilize aircraft more during higher demand periods.
    “The capacity changes next year are all about getting the network optimized to match the new demand patterns,” Jordan said. “In some cases, the peak and trough [of demand] are farther apart.”
    Automakers are also losing their pricing power following years of resilient demand and low supplies of new vehicles that led to record North American profits for Detroit automakers as well as foreign-based companies such as Toyota Motor.
    Average transaction prices of new vehicles climbed from less than $38,000 in January 2020 to more than $50,000 at the start of 2023 — an unprecedented 32% increase over that time. Prices remain elevated but were down more than 3.5% through October to roughly $47,936, according to the most recent data from Cox Automotive.
    “The consumer is definitely pushing back,” said Ohsung Kwon, an equities strategist at Bank of America, referring to some prices.
    “But we think the consumer is healthy,” he continued. “The balance sheet of the consumer still looks phenomenal.”

    Spending hangover

    There is plenty to cheer about the state of the U.S. consumer — the job market is still strong, unemployment is low and spending has been resilient.
    But consumers have also tapped into their savings and racked up credit card debt, with balances reaching a record $1.08 trillion at the end of the third quarter, according to the New York Federal Reserve. Credit card delinquency rates are above pre-pandemic levels.
    Those dynamics have some consumers pulling back on expenses at a time when companies had already been grappling with spending shifts as pandemic fears eased. Consumers that had spent heavily during Covid lockdowns on things such as home improvement supplies shifted their money to services such as travel and restaurants when restrictions lifted.
    While airlines, many retailers and others have forecast a strong holiday season, the question remains whether consumers will continue their spending habits in the coming months, which are typically a low season for shopping and travel, especially as they pay off their recent purchases. That could mean a challenging period for companies to push price increases on consumers.
    Even if companies can’t raise prices and if sales growth is muted, analysts are still upbeat about earnings next year.

    FactSet data shows analysts expect a 6.6% increase in earnings of S&P 500 companies in the first quarter of 2024 from a year earlier. They forecast a sales increase of 4.4%. Both growth metrics would mark an annual improvement and quarter-on-quarter improvement. Net margins are expected to expand 11.8%.
    Bank of America’s Kwon said he expects earnings to improve even if U.S. economic growth slows due in part to company strategy shifts.
    “Companies are really focusing on what they can cut,” he said. “Companies have overhired and overbuilt capacity. They’ve stopped doing that.”
    — CNBC’s Michael Wayland contributed to this article.Don’t miss these stories from CNBC PRO: More

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    Holiday Spending Increased, Defying Fears of a Decline

    While the pace of growth slowed, spending stayed strong because of robust job growth and strong wage gains.Despite lingering inflation, Americans increased their spending this holiday season, early data shows. That comes as a big relief for retailers that had spent much of the year fearing the economy would soon weaken and consumer spending would fall.Retail sales increased 3.1 percent from Nov. 1 to Dec. 24 compared with the same period a year earlier, according to data Mastercard released on Tuesday. The credit card company’s numbers are not adjusted for inflation.Spending increased across many categories, with restaurants experiencing one of the largest jumps, 7.8 percent. Apparel increased 2.4 percent, and groceries also had gains.The holiday sales figures, driven by a healthy labor market and wage gains, suggests that the economy remains strong. The Federal Reserve’s campaign to rein in high inflation by raising interest rates over the last few years has slowed the economy, but many economists believe a so-called soft landing is within reach.“What we’re seeing during this holiday season is very consistent with how we’re thinking about the economy, which is that it’s an economy that is still very much expanding,” said Michelle Meyer, Mastercard’s chief economist.Solid job growth is allowing people to spend more. And even though consumer prices have risen a lot in the last two years, wages have grown faster on the whole.“We’re now entering the period, and we’re seeing it to some extent during the holiday season, where consumers have built up real purchasing power,” Ms. Meyer said.Still spending in categories like electronics and jewelry declined this season. And the rate of growth in spending has moderated from the last couple of years. In 2022, retail sales during the holiday season increased 5.4 percent, according to the National Retail Federation. In 2021, they rose 12.7 percent, the largest percentage increase in at least 20 years. Online sales growth has also slowed in 2023, increasing 6.3 percent compared with 10.6 percent from 2021 to 2022, according to Mastercard.While the economy is strong overall, Americans are being more mindful of how they’re spending, and that discretion shaped the shopping season.Some retailers had expressed concerns in recent months that shoppers appeared glum and fearful about the economy. Walmart and Target noted that shoppers seemed to be waiting for sales before buying, a change from recent years when they spent more freely.“The caution that they’ve taken on their spend and where they’re spending has been really noticeable in the second half of the year, where a lot of customers have been affected, especially lower-income and middle-income” people, said Jessica Ramírez, a retail research analyst at Jane Hali & Associates.In a return to some of the trends that prevailed before the pandemic, many retailers and brands offered promotions. Discounts were in the 30 to 50 percent range, Ms. Ramírez said. But the discounts were more targeted this year than last because fewer companies were saddled with gluts of inventory.Retail sales increased this holiday season compared with the same period a year earlier, though at a slower pace than last year.Maansi Srivastava/The New York TimesThe categories that have faced falling sales this year — like electronics, home furnishings and toys — saw some of the biggest discounts leading up to Christmas. Those goods had enjoyed booming sales during the pandemic.Alexan Weir, a 30-year-old mother in Orlando, Fla., said she was pleased to find deals on toys when she bought Christmas gifts for her daughters this month. Among the items she bought at Target were the Asha doll, based on the main character from the Disney movie “Wish”; an Elsa doll from “Frozen”; and a Minnie Mouse kitchen set. With discounts, the items together cost about half as much as their total list prices of $200.“As a parent you’re just trying to make your kids happy. You’re not trying to break the bank,” Ms. Weir said. “I spent a little bit more this year, but at least with the few sales that I received, I can say I was not heartbroken about how much I was spending.”Barbie — whose banner year was fueled by the blockbuster movie — sold particularly well in a year when there wasn’t a breakout toy. The doll and her many accouterments have been selling well at Mary Arnold Toys, a family-owned store on Manhattan’s Upper East Side. And overall sales at the shop have been steady, said Ezra Ishayik, who has run the store for 40 years.“It looks like it is about even with last year — not better, not worse,” Mr. Ishayik said. “The economy looks good to me. It’s decent, it’s OK, people are buying. We are on the high end of the industry so we don’t see any downtrend at all.”But the past few months have been more challenging for Modi Toys.Modi, an online retailer, sells plush toys and books based on Hindu culture and usually sees two sales bumps in the fourth quarter — one in the lead up to Diwali and another around Christmas.Normally the company brings in more than $100,000 in sales in the month before Diwali, which fell on Nov. 12, but this year sales dropped into the five-figure range. That was partly because the retailer launched a product too early and then had to offer hefty discounts to spur sales — something retailers try to avoid with new merchandise.“That’s when we knew that we really were going to have a challenging holiday season,” said Avani Modi Sarkar, a founder of the company.As she wraps up the year and looks toward 2024, Ms. Sarkar is testing new digital marketing strategies, including sending personalized email newsletters to customers and closely monitoring discounts.“We’re just trying to close the gap for us and not end the year with as big of a gap as we would have,” she said. “I know what we’re capable of, and I’m trying to not only get to that level again, but surpass it.”One clear sign that shoppers are being more careful about how much they spend comes from discount retailers. In November, Burlington, an off-price retailer, and the parent company of Marshalls and T.J. Maxx said they saw comparable store sales increase 6 percent.The online retailer ThriftBooks said its sales were also up this holiday season, by more than 20 percent in November and more than 24 percent this month compared with a year ago, according to Ken Goldstein, the company’s chief executive.“This was unprecedented,” Mr. Goldstein said. “This is beyond belief in terms of the volume that we’re doing. Because we’re a value product, I think a lot of people are putting their dollars to work.” More

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    Inflation has created a dark cloud over how everyday Americans view the economy

    Residual anger about high inflation in recent years appears to have soured consumers’ views of the economy.
    That discontent comes even as a strong labor market, appreciating home values and a stock market rebound has made some positive about their financial situation.

    Grocery items are offered for sale at a supermarket on August 09, 2023 in Chicago, Illinois.
    Scott Olson | Getty Images

    When Kyle Connolly looks back at 2023, she sees it as a year defined by changes and challenges.
    The newly single parent reentered the workforce, only to be laid off from her job at a custom home-building company in November. At the same time, Connolly has seen prices climb for everything from her Aldi’s grocery basket to her condo’s utility costs.

    In turn, she’s cut back on everyday luxuries like eating out or going to the movies. Christmas will look pared down for her three kids compared to years prior.
    “I’ve trimmed everything that I possibly can,” said the 41-year-old. “It sucks having to tell my kids no. It sucks when they ask for a little something extra when we’re checking out at the grocery store and having to tell them, ‘No, I’m sorry, we can’t.'”
    Economic woes have seemed more apparent within her community in Florida’s panhandle. Connolly has noticed fewer 2022 Chevy Suburbans on the road, replaced by older Toyota Camry models. The waters typically filled with boats have been eerily quiet as owners either sold them or tried to cut back on gas costs. Fellow parents have taken to Facebook groups to discuss ways to better conserve money or rake in extra income.
    The struggles among Connolly and her neighbors highlight a key conundrum puzzling economists: Why does the average American feel so bad about an economy that’s otherwise considered strong?

    ‘High prices really hurt’

    By many accounts, it has been a good year on this front. The annualized rate of price growth is sliding closer to a level preferred by the Federal Reserve, while the labor market has remained strong. There’s rising hope that monetary policymakers have successfully cooled inflation without tipping the economy into a recession. 

    Yet closely watched survey data from the University of Michigan shows consumer sentiment, while improving, is a far cry from pre-pandemic levels. December’s index reading showed sentiment improved by almost 17% from a year prior, but was still nearly 30% off from where it sat during the same month in 2019.
    “The main issue is that high prices really hurt,” said Joanne Hsu, Michigan’s director of consumer surveys. “Americans are still trying to come to grips with the idea that we’re not going back to the extended period of low inflation, low interest rates that we had in the 2010s. And that reality is not the current reality.”

    Still, Hsu sees reason for optimism when zooming in. Sentiment has largely improved from its all-time low seen in June 2022 — the same month the consumer price index rose 9.1% from a year earlier — as people started noticing inflationary pressures recede, she said.
    One notable caveat was the drop in sentiment this past May, which she tied to the U.S. debt ceiling negotiations. The 2024 presidential election has added to feelings of economic uncertainty for some, Hsu said.

    Inflation vs. the job market

    Continued strength in the labor market is something economists expected to sweeten everyday Americans’ views of the economy. But because consumers independently decide how they feel, jobs may hold less importance in their mental calculations than inflation.
    There are still more job openings than there are unemployed people, according to the latest data from the Bureau of Labor Statistics. Average hourly pay has continued rising — albeit at a slower rate than during the pandemic — and was about 20% higher in November than it was in the same month four years ago, seasonally adjusted Labor Department figures show.
    That’s helped boost another widely followed indicator of vibes: the Conference Board’s consumer confidence index. Its preliminary December reading was around 14% lower than the same month in 2019, meaning it has rebounded far more than the Michigan index.

    While the Michigan index compiles questions focused on financial conditions and purchasing power, the Conference Board’s more closely gauges one’s feelings about the job market. That puts the latter more in line with data painting a rosier picture of the economy, according to Camelia Kuhnen, a finance professor at the University of North Carolina.
    “You think that they’re talking about different countries,” Kuhnen said of the two measures. “They look different because they focus on different aspects of what people would consider as part of their economic reality.”
    A hot job market can be a double-edged sword for sentiment, Michigan’s Hsu noted. Yes, it allows workers to clinch better roles or higher pay, she said. But when those same workers put on their consumer hats, a tight market means shorter hours or limited availability at their repair company or veterinarian’s office.

    Silver linings for some

    Other reasons why consumers feel positively about the economy this year can only be true for certain — and often wealthier — groups, economists say.
    UNC’s Kuhnen said Americans would be pleased if they are homeowners seeing price appreciation. Another reason for optimism: If they had investments during 2023’s stock market rebound.
    Without those cushions, people on the lower end of the income spectrum may feel more of a pinch as higher costs bite into any leftover savings from pandemic stimulus, Kuhnen said. Elsewhere, the resumption of student loan payments this year likely also caused discontent for those with outstanding dues, according to Karen Dynan, a Harvard professor and former chief economist for the U.S. Treasury Department.

    Marissa Lyda moved with her husband and two kids to Phoenix from Portland earlier this year, in part due to lower housing costs. With profits from the value gained on the property she bought in 2019, her family was able to get a nicer house in the Grand Canyon state.
    Yet she’s had to contend with an interest rate that’s more than double what she was paying on her old home. Though Arizona’s lower income tax has fattened her family’s wallet, Lyda has found herself allocating a sizable chunk of that money to her rising grocery bill.
    The stay-at-home mom has switched her go-to grocer from Kroger to Walmart as value became increasingly important. She’s also found herself searching harder in the aisles for store-brand food and hunting for recipes with fewer ingredients.
    Her family’s financial situation certainly doesn’t feel like it reflects the economy she hears experts talking about, Lyda said. It’s more akin to the videos she sees on TikTok and chatter among friends about how inflation is still pinching pocketbooks.
    “I look at the news and see how they’re like, ‘Oh, best earnings, there’s been great growth,'” the 29-year-old said. “And I’m like, ‘Where’s that been?'”

    ‘Just trying to hold on’

    Economists wonder if social media discourse and discussion about a potential recession have made Americans think they should feel worse about the economy than they actually do. That would help explain why consumer spending remains strong, despite the fact that people typically tighten their belts when they foresee financial turmoil.
    There’s also a feeling of whiplash from the runaway inflation that snapped a long period of low-to-normal price growth, said Harvard’s Dynan. Now, even as the annual rate of inflation has cooled to more acceptable levels, consumers remain on edge as prices continue to creep higher.
    “People are still angry about the inflation we saw in 2021 and, in particular, 2022,” Dynan said. “There’s something about the salience of … the bill for lunch that you see every single day that just maybe resonates in your brain, relative to the pay increase you get once a year.”

    Federal Reserve Board Chairman Jerome Powell speaks during a press conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy at the Federal Reserve in Washington, U.S., December 13, 2023. 
    Kevin Lamarque | Reuters

    Another potential problem: The average person may not completely understand that some inflation is considered normal. In fact, the Federal Reserve, which sets U.S. monetary policy, aims for a 2% increase in prices each year. Deflation, which is when prices decrease, is actually seen as bad for the economy.
    Despite these quandaries, economists are optimistic for the new year as it appears increasingly likely that a recession has been avoided and the Fed can lower the cost of borrowing money. For everyday Americans like Connolly and Lyda, inflation and their financial standing will remain top of mind.
    Lyda has cut treats like weekly Starbucks lattes out of the budget to ensure her family can afford a memorable first holiday season in their new home. In 2024, she’ll be watching to see if the Fed cuts interest rates, potentially creating an opportunity to refinance the loan on that house.
    “You just have to realize that every season of life may not be this huge financial season,” Lyda said. “Sometimes you’re in a season where you’re just trying to hold on. And I feel like that’s what it’s been like for most Americans.” More

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    Red Sea Shipping Halt Is Latest Risk to Global Economy

    Next year could see increasing volatility as persistent military conflicts and economic uncertainty influence voting in national elections across the globe.The attacks on crucial shipping traffic in the Red Sea straits by a determined band of militants in Yemen — a spillover from the Israeli-Hamas war in Gaza — is injecting a new dose of instability into a world economy already struggling with mounting geopolitical tensions.The risk of escalating conflict in the Middle East is the latest in a string of unpredictable crises, including the Covid-19 pandemic and the war in Ukraine, that have landed like swipes of a bear claw on the global economy, smacking it off course and leaving scars.As if that weren’t enough, more volatility lies ahead in the form of a wave of national elections whose repercussions could be deep and long. More than two billion people in roughly 50 countries, including India, Indonesia, Mexico, South Africa, the United States and the 27 nations of the European Parliament, will head to the polls. Altogether, participants in 2024’s elections olympiad account for 60 percent of the world’s economic output.In robust democracies, elections are taking place as mistrust in government is rising, electorates are bitterly divided and there is a profound and abiding anxiety over economic prospects.A ship crossing the Suez Canal toward the Red Sea. Attacks on the Red Sea have pushed up freight and insurance rates.Mohamed Hossam/EPA, via ShutterstockA billboard promoting presidential elections in Russia, which will take place in March.Dmitri Lovetsky/Associated PressEven in countries where elections are neither free nor fair, leaders are sensitive to the economy’s health. President Vladimir V. Putin’s decision this fall to require exporters to convert foreign currency into rubles was probably done with an eye on propping up the ruble and tamping down prices in the run-up to Russia’s presidential elections in March.The winners will determine crucial policy decisions affecting factory subsidies, tax breaks, technology transfers, the development of artificial intelligence, regulatory controls, trade barriers, investments, debt relief and the energy transition.A rash of electoral victories that carry angry populists into power could push governments toward tighter control of trade, foreign investment and immigration. Such policies, said Diane Coyle, a professor of public policy at the University of Cambridge, could tip the global economy into “a very different world than the one that we have been used to.”In many places, skepticism about globalization has been fueled by stagnant incomes, declining standards of living and growing inequality. Nonetheless, Ms. Coyle said, “a world of shrinking trade is a world of shrinking income.”And that raises the possibility of a “vicious cycle,” because the election of right-wing nationalists is likely to further weaken global growth and bruise economic fortunes, she warned.A campaign rally for former President Donald J. Trump in New Hampshire in December.Doug Mills/The New York TimesA line of migrants on their way to a Border Patrol processing center at the U.S.-Mexico border. Immigration will be a hot topic in upcoming elections.Rebecca Noble for The New York TimesMany economists have compared recent economic events to those of the 1970s, but the decade that Ms. Coyle said came to mind was the 1930s, when political upheavals and financial imbalances “played out into populism and declining trade and then extreme politics.”The biggest election next year is in India. Currently the world’s fastest-growing economy, it is jockeying to compete with China as the world’s manufacturing hub. Taiwan’s presidential election in January has the potential to ratchet up tensions between the United States and China. In Mexico, the vote will affect the government’s approach to energy and foreign investment. And a new president in Indonesia could shift policies on critical minerals like nickel.The U.S. presidential election, of course, will be the most significant by far for the world economy. The approaching contest is already affecting decision-making. Last week, Washington and Brussels agreed to suspend tariffs on European steel and aluminum and on American whiskey and motorcycles until after the election.The deal enables President Biden to appear to take a tough stance on trade deals as he battles for votes. Former President Donald J. Trump, the likely Republican candidate, has championed protectionist trade policies and proposed slapping a 10 percent tariff on all goods coming into the United States — a combative move that would inevitably lead other countries to retaliate.Mr. Trump, who has echoed authoritarian leaders, has also indicated that he would step back from America’s partnership with Europe, withdraw support for Ukraine and pursue a more confrontational stance toward China.Workers on a car assembly line in Hefei, China. Beijing has provided enormous incentives for electric vehicles.Qilai Shen for The New York TimesA shipyard in India, which is jockeying to compete with China as the world’s largest manufacturing hub.Atul Loke for The New York Times“The outcome of the elections could lead to far-reaching shifts in domestic and foreign policy issues, including on climate change, regulations and global alliances,” the consulting firm EY-Parthenon concluded in a recent report.Next year’s global economic outlook so far is mixed. Growth in most corners of the world remains slow, and dozens of developing countries are in danger of defaulting on their sovereign debts. On the positive side of the ledger, the rapid fall in inflation is nudging central bankers to reduce interest rates or at least halt their rise. Reduced borrowing costs are generally a spur to investment and home buying.As the world continues to fracture into uneasy alliances and rival blocs, security concerns are likely to loom even larger in economic decisions than they have so far.China, India and Turkey stepped up to buy Russian oil, gas and coal after Europe sharply reduced its purchases in the wake of Moscow’s invasion of Ukraine. At the same time, tensions between China and the United States spurred Washington to respond to years of strong-handed industrial support from Beijing by providing enormous incentives for electric vehicles, semiconductors and other items deemed essential for national security.A protest in Yemen on Friday against the operation to safeguard trade and protect ships in the Red Sea.Osamah Yahya/EPA, via ShutterstockThe drone and missile attacks in the Red Sea by Iranian-backed Houthi militia are a further sign of increasing fragmentation.In the last couple of months, there has been a rise in smaller players like Yemen, Hamas, Azerbaijan and Venezuela that are seeking to change the status quo, said Courtney Rickert McCaffrey, a geopolitical analyst at EY-Parthenon and an author of the recent report.“Even if these conflicts are smaller, they can still affect global supply chains in unexpected ways,” she said. “Geopolitical power is becoming more dispersed,” and that increases volatility.The Houthi assaults on vessels from around the world in the Bab-el-Mandeb strait — the aptly named Gate of Grief — on the southern end of the Red Sea have pushed up freight and insurance rates and oil prices while diverting marine traffic to a much longer and costlier route around Africa.Last week, the United States said it would expand a military coalition to ensure the safety of ships passing through this commercial pathway, through which 12 percent of global trade passes. It is the biggest rerouting of worldwide trade since Russia’s invasion of Ukraine in February 2022.Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the impact of the attacks had so far been limited. “From an economic perspective, we’re not seeing huge increase in oil and gas prices,” Mr. Vistesen said, although he acknowledged that the Red Sea assaults were the “most obvious near-term flashpoint.”Uncertainty does have a dampening effect on the economy, though. Businesses tend to adopt a wait-and-see attitude when it comes to investment, expansions and hiring.“Continuing volatility in geopolitical and geoeconomic relations between major economies is the biggest concern for chief risk officers in both the public and private sectors,” a midyear survey by the World Economic Forum found.With persistent military conflicts, increasing bouts of extreme weather and a slew of major elections ahead, it’s likely that 2024 will bring more of the same. More

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    Under Argentina’s New President, Fuel Is Up 60%, and Diaper Prices Have Doubled

    Javier Milei warned that things would get worse before they got better. Now Argentines are living it.Over the past two weeks, the owner of a hip wine bar in Buenos Aires saw the price of beef soar 73 percent, while the zucchini he puts in salads rose 140 percent. An Uber driver paid 60 percent more to fill her tank. And a father said he spent twice as much on diapers for his toddler than he did last month.In Argentina, a country synonymous with galloping inflation, people are used to paying more for just about everything. But under the country’s new president, life is quickly becoming even more painful.When Javier Milei was elected president on Nov. 19, the country was already suffering under the world’s third-highest rate of inflation, with prices up 160 percent from a year before.But since Mr. Milei took office on Dec. 10 and quickly devalued the Argentine currency, prices have soared at such a dizzying pace that many in this South American country of 46 million are running new calculations on how their businesses or households can survive the far deeper economic crunch the country is already enduring.“Since Milei won, we’ve been worried all the time,” said Fernando González Galli, 36, a high school philosophy teacher in Buenos Aires.Mr. Galli has been trying to cut back without making life worse for his two daughters, who are 6 years and 18 months old, including switching to a cheaper brand of diapers and racing to spend his Argentine pesos before their value disintegrates even further. “As soon as I get my paycheck, I go buy everything I can,” he said.Since Javier Milei took office on Dec. 10 and quickly devalued the Argentine currency, prices have risen at a dizzying pace.Emiliano Lasalvia/Agence France-Presse — Getty ImagesNahuel Carbajo, 37, an owner of Naranjo Bar, a trendy Buenos Aires wine bar, said that like most Argentines, he had become accustomed to regular price increases, but this past week went far beyond what even he was used to.Since Mr. Milei won, the price for the premium steak that Mr. Carbajo serves soared 73 percent, to 14,580 pesos, or roughly $18, per kilogram, about 2.2 pounds; a five-kilogram box of zucchinis rose to 15,600 pesos from 6,500; and avocados cost 51 percent more than the beginning of this month.“There’s no way for salaries or people’s incomes to adapt at that speed,” Mr. Carbajo said.Mr. Milei’s spokesman, Manuel Adorni, said accelerating inflation was the inevitable consequence of finally fixing Argentina’s distorted economy.“We’ve been left with a multitude of problems and unresolved issues that we have to start addressing,” he said. “Inevitably, we will go through months of high inflation.”Mr. Milei has warned Argentines that his plans to shrink the government and remake the economy would hurt at first. “I prefer to tell you the uncomfortable truth rather than a comfortable lie,” he said in his inaugural address, adding this past week that he wanted to end the country’s “model of decline.”Argentina’s economy has been mired in crisis for years, with chronic inflation, rising poverty and a currency that has plunged in value. The economic turmoil paved the way to the presidency for Mr. Milei, a political outsider who had spent years as an economist and television pundit railing against what he called corrupt politicians who had destroyed the economy, often for personal gain.During the campaign, he vowed to take a chain saw to public spending and regulations, even wielding an actual chain saw at rallies.After Mr. Milei’s victory, price increases began accelerating in expectation of his new policies.Buying fruit and vegetables in Buenos Aires. Argentines suffer under the world’s third highest rate of inflation.Tomas Cuesta/ReutersThe previous leftist government had used complicated currency controls, consumer subsidies and other measures to inflate the peso’s official value and keep several key prices artificially low, including gas, transportation and electricity.Mr. Milei vowed to undo all that, and he has wasted little time.Two days after taking office, Mr. Milei began cutting government spending, including consumer subsidies. He also devalued the peso by 54 percent, putting the government’s exchange rate much closer to the market’s valuation of the peso.Economists said such measures were necessary to fix Argentina’s long-term financial problems. But they also brought short-term pain in the form of even faster inflation. Some analysts questioned the lack of adequate safety nets for the poorest Argentines.In November, prices rose 13 percent from October, according to government data. Analysts predict prices will increase another 25 percent to 30 percent this month. And from now until February, some economists are forecasting an 80 percent jump, according to Santiago Manoukian, the chief economist at Ecolatina, an economics consulting firm.The forecasts are partly caused by soaring gas prices, which increased 60 percent from Dec. 7 to Dec. 13, and have a trickle-down effect on the economy.The currency devaluation made imported products like coffee, electronic devices and gas immediately more expensive because they are priced in U.S. dollars. A monthly Netflix subscription in Argentina jumped 60 percent to 6,676 pesos, or $8.30, the day after the devaluation, for example. It also prompted some domestic producers, including farmers and cattle ranchers, to increase prices to align them with their own rising costs.With the chronic high inflation, labor unions often negotiate large raises to try to keep up, yet those wage increases are quickly eaten up by sharp price hikes. Informal workers, a list that includes nannies and street vendors, and who make up nearly half of the economy, also do not get such raises.Outside a clothing store this month in Buenos Aires. In November, prices rose 13 percent from October, and analysts predict that prices will increase another 25 percent to 30 percent this month.Luis Robayo/Agence France-Presse — Getty ImagesOn Wednesday, Mr. Milei launched his next big steps to remake the government and economy with an emergency decree that significantly reduces the state’s role in the economy and eliminates a raft of regulations.The measure prohibits the state from regulating the rental real estate market and setting limits on fees that banks and health insurers can charge customers; changes labor laws to make it easier to fire workers while also placing limits on strikes; and turns state companies into corporations so they can be privatized.Many legal analysts immediately questioned the decree’s constitutionality, saying that Mr. Milei was trying to subvert Congress.After the speech, people across Buenos Aires, like Jesusa Orfelia Peralta, 73, a retiree, took to the streets banging on pots to show their displeasure.She worried that price increases would make proper health care too expensive for her and her husband. Despite severe spinal problems, she said she did not hesitate to head out, using a walker, and vent her anger in public. “Where else would I be?” she said.A protest on Wednesday in Buenos Aires against Mr. Milei’s austerity measures.Luis Robayo/Agence France-Presse — Getty ImagesMr. Milei has sought to discourage protests by threatening to cancel welfare plans and fine anyone involved in demonstrations that block roads. Human rights groups have widely criticized such policies as restricting the right to peacefully protest.For now, most Argentines are trying to figure out how to make ends meet in what often feels like both a complicated course in economics and a frenzied sprint to buy before prices rise again.“I always say that we are at university, and every day we sit for a difficult exam, every five minutes,” Roberto Nicolás Ormeño, an owner of El Gauchito, a small empanada shop in downtown Buenos Aires.Mr. Ormeño said he had been scouring the market for his ingredients and changing suppliers almost every week, either because they increase prices too much or provide poorer quality products.He is trying to avoid passing along too much of his price increases to customers, though he is unsure how long he can sustain that. “I see my frequent customers buying one dozen instead of two” dozen empanadas, he said.Marisol del Valle Cardozo, who has a 3-year-old daughter, has been cutting back in a bid to make ends meet, turning to cheaper brands and going out less. “We don’t turn the air-conditioning on as much,” she said. “We decreased our plans on weekends from four times a month to just once.”Ms. Cardozo, who works for a police department outside Buenos Aires, said that she got a raise this year, but that it is already not enough. She also drives an Uber, but said that fare increases had not kept up with the soaring gas prices.Despite the challenges, Ms. Cardozo said she remained a Milei supporter and was hoping his policies work.“We were living under a fantasy,” she said, referring to gas prices before the recent hike. “If these adjustments are necessary to thrive in the end, they’re worth it.”Protesters in front of the National Congress on Thursday in Buenos Aires.Luis Robayo/Agence France-Presse — Getty ImagesJack Nicas More

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    Price Increases Cooled in November as Inflation Falls Toward Fed Target

    A key inflation measure has been slowing and overall prices actually declined slightly from October, good news for officials and consumers.A closely watched measure of inflation cooled notably in November, good news for the Federal Reserve as officials move toward the next phase in their fight against rapid price increases and a positive for the White House as voters see relief from rising costs.The Personal Consumption Expenditures inflation measure, which the Fed cites when it says it aims for 2 percent inflation on average over time, climbed 2.6 percent in the year through November. That was down from 2.9 percent the previous month, and was less than what economists had forecast. Compared with the previous month, prices overall even fell slightly for the first time in years.That decline — a 0.1 percent drop, and the first negative reading since April 2020 — came as gas prices dropped. After volatile food and fuel prices were stripped out for a clearer look at underlying price pressures, inflation climbed modestly on a monthly basis and 3.2 percent over the year. That was down from 3.4 percent previously.While that is still faster than the Fed’s goal, the report provided the latest evidence that price increases are swiftly slowing back toward the central bank’s target. After more than two years of rapid inflation that has burdened American shoppers and bedeviled policymakers, several months of solid progress have helped to convince policymakers that they may be turning a corner.Increasingly, officials and economists think that they may be within sight of a soft economic landing — one in which inflation moderates back to normal without a painful recession. Fed policymakers held interest rates steady at their meeting this month, signaled that they might well be done raising interest rates and suggested that they could even cut borrowing costs three times next year.“Inflation is slowing a lot faster than the Fed had anticipated — that could allow them to potentially cut soon, and more aggressively,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities. “They’re really trying their best to deliver a soft landing here.”The inflation progress is welcome news for the Biden administration, which has struggled to capitalize on strong economic growth and low unemployment at a time when high prices are eroding household confidence.President Biden released a statement celebrating the report, and Lael Brainard, director of the National Economic Council, called the slowdown in inflation “a significant milestone” in a call with reporters.“Inflation has come down faster than even the more optimistic forecasts,” she said, noting that wage gains are outstripping price increases. While she didn’t comment on monetary policy directly, citing the central bank’s independence from the White House, she did note that households are already facing lower mortgage rates as investors come to expect a more lenient Fed.Based on market pricing, the Fed is expected to begin lowering interest rates as soon as March, though officials have argued that it is too early to talk about when rate cuts will commence.“Inflation has eased from its highs, and this has come without a significant increase in unemployment — that’s very good news,” Jerome H. Powell, the Fed chair, said at that meeting. Still, he emphasized that “the path forward is uncertain.”Central bankers are likely to watch closely for signs that inflation has continued to cool as they contemplate when to start cutting rates. Some officials have suggested that keeping borrowing costs steady when price increases are slowing would effectively squeeze the economy more. (Interest rates are not price-adjusted, so they get higher after stripping inflation out as inflation falls.)Still, Fed officials have been hesitant to declare victory after repeated head fakes in which price increases proved more stubborn than expected, and at a time when geopolitical issues could complicate supply chains or push up gas prices.“The more benign inflation data is certainly something to celebrate, but there is some turbulence ahead,” Omair Sharif, founder of Inflation Insights, wrote in a note reacting to Friday’s data. “Fed officials will want to get through before turning the focus squarely to rate cuts.”Policymakers are also likely to keep a close eye on consumer spending as they try to figure out how much momentum is left in the economy.The report released Friday showed that consumers are still spending at a moderate clip. A measure of personal consumption climbed 0.2 percent from October, and 0.3 percent after adjusting for inflation. Both readings were quicker than the previous month. That suggested that growth is still positive, though is no longer quite as hot as it was earlier this year.Officials still expect the economy to slow more notably in 2024, a demand cool-down that they think would pave the way to sustainably slower price increases.After a year in which inflation cooled rapidly in spite of surprisingly strong growth, economists are expressing humility. But policymakers remain wary of a situation in which growth remains too strong.“If you have growth that’s robust, what that will mean is probably we’ll keep the labor market very strong; it probably will place some upward pressure on inflation,” Mr. Powell said at his news conference. “That could mean that it takes longer to get to 2 percent inflation.”That, he said, “could mean we need to keep rates higher for longer.” More

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    Fed’s favorite inflation gauge shows prices rose at 3.2% annual rate in November, less than expected

    The core personal consumption expenditures price index rose just 0.1% in November and was up 3.2% from a year ago, both close to expectations.
    On a six-month basis, core PCE was up 1.9%, below the Fed’s 12-month target.
    Including food and energy costs, so-called headline PCE actually fell 0.1% on the month and was up just 2.6% from a year ago.

    A gauge the Federal Reserve uses for inflation rose slightly in November and edged closer to the central bank’s goal.
    The core personal consumption expenditures price index, which excludes volatile food and energy prices, increased 0.1% for the month, and was up 3.2% from a year ago, the Commerce Department reported Friday.

    Economists surveyed by Dow Jones had been expecting respective rises of 0.1% and 3.3%.
    On a six-month basis, core PCE increased 1.9%, indicating that if current trends continue the Fed essentially has reached its goal.
    “Adding in the further sharp slowdown in rent inflation still in the pipeline, it’s hard to see any credible reason why the annual inflation rate won’t also return to the 2% target over the coming months,” wrote Andrew Hunter, deputy chief U.S. economist at Capital Economics.
    Markets reacted little to the report, with Wall Street set for a mixed open Friday in its last session before the Christmas holiday.
    Elsewhere in the report, consumer expenditures in November climbed 0.3% while income rose 0.4%, numbers that were in line with expectations and indicative that spending was continuing apace despite ongoing inflation pressures.

    Including food and energy costs, so-called headline PCE actually fell 0.1% on the month and was up just 2.6% from a year ago, after peaking above 7% in mid-2022. That was the first monthly decline since April 2020, according to Fed data.
    The 12-month numbers are significant in that both show inflation making continued progress toward the Fed’s 2% target.
    “The Federal Open Market Committee is not yet ready to declare victory on inflation, but the outlook is much better than it was just a few months ago,” wrote Gus Faucher, chief economist at PNC Financial Services. “The slowing in core inflation opens the door for fed funds rate cuts in 2024; the timing will depend on core PCE numbers over the next few months.”
    The Fed prefers PCE as an inflation measure over the more widely followed CPI as the former focuses more on what consumers actually spend rather than the latter’s measure of what goods and services cost. Though policymakers watch both measures, they are more concerned with core prices as a longer-run inflation gauge.
    November’s report reflected a shift in consumer appetite, as prices for services increased 0.2% while goods slumped 0.7%. A 2.7% slide in energy prices and a 0.1% decrease in food helped hold back inflation for the month.
    Much of the market’s focus lately has been on the Fed’s inflation view and what that will mean for interest rates.
    For each of its last three meetings, the Federal Open Market Committee has held the line, keeping its benchmark overnight borrowing rate targeted between 5.25%-5.5%. At its meeting last week, the committee indicated it is done raising rates and expects to implement cuts totaling 0.75 percentage point in 2024. Markets expect the first rate reduction to happen in March.
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