Raphael Stevens

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    Minneapolis Fed President Kashkari sees a slower pace of rate cuts ahead

    Minneapolis Fed President Neel Kashkari said Monday that he expects policymakers to dial down the pace of interest rate cuts after last week’s half percentage point reduction.
    Speaking separately Monday morning, Atlanta Fed President Raphael Bostic indicated he expects the Fed to move aggressively in getting back to a neutral rate.

    Minneapolis Federal Reserve President Neel Kashkari said Monday that he expects policymakers to dial down the pace of interest rate cuts after last week’s half percentage point reduction.
    “I think after 50 basis points, we’re still in a net tight position,” Kashkari said in a CNBC “Squawk Box” interview. “So I was comfortable taking a larger first step, and then as we go forward, I expect, on balance, we will probably take smaller steps unless the data changes materially.”

    In a decision that came as at least a mild surprise, the rate-setting Federal Open Market Committee last week voted to reduce its benchmark overnight borrowing rate by half a percentage point, or 50 basis points. It was the first time the committee had cut by that much since the early days of the Covid pandemic, and, before that, the financial crisis in 2008. One basis point equals 0.01%.
    While the move was unusual from a historical perspective, Kashkari said he thought it was necessary to get rates to reflect a recalibration of policy from a focus on overheating inflation to more concern about a softening labor market.
    His comments indicate the central bank could move back to more traditional moves in quarter-point increments.
    “Right now, we still have a strong, healthy labor market. But I want to keep it a strong, healthy labor market, and a lot of the recent inflation data is coming in looking very positive that we’re on our way back to 2%,” he said. “So I don’t think you’re going to find anybody at the Federal Reserve who declares mission accomplished, but we are paying attention to what risks are most likely to materialize in the near future.”
    As part of the committee’s rotating schedule, Kasharki will not get a vote on the FOMC until 2026, though he does get a say during policy meetings.

    The rate cut last week signaled that the Fed is on its way to normalizing rates and bringing them back to a “neutral” position that neither pushes nor restricts growth. In their latest economic projections, FOMC members indicated that rate is probably around 2.9%; the current fed funds rate is targeted between 4.75% and 5%.
    Speaking separately Monday morning, Atlanta Fed President Raphael Bostic indicated he expects the Fed to move aggressively in getting back to a neutral rate.
    “Progress on inflation and the cooling of the labor market have emerged much more quickly than I imagined at the beginning of the summer,” said Bostic, who does vote this year on the FOMC. “In this moment, I envision normalizing monetary policy sooner than I thought would be appropriate even a few months ago.”
    Bostic also noted that last week’s cut puts the Fed in a better position on policy, in that it can slow the pace of easing if inflation starts to peak up again, or accelerate it if the labor market slows further.
    Market pricing anticipates a relatively even chance of the FOMC cutting by either a quarter- or half-percentage point at its November meeting, with a stronger likelihood of the larger move in December, for a total of 0.75 percentage point in further reductions by the end of the year, according to the CME Group’s FedWatch measure. More

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    GM’s EV sales momentum is finally building as new vehicle lineup fills out

    EV sales data provided to CNBC by the Detroit automaker, which publicly reports sales quarterly, shows a notable increase for GM through August.
    GM sold nearly 21,000 EVs in the U.S. in July and August – almost matching its full second-quarter EV sales.
    Those two back-to-back record months for GM’s EVs have it within striking distance of Ford through August.

    Mary Barra, GM chair and CEO, speaks during the unveiling of the Cadillac Celestiq electric sedan in Los Angeles, Oct. 17, 2022.
    Frederic J. Brown | AFP | Getty Images

    WARREN, Mich. – If everything had gone to plan for General Motors over the last three years, the Detroit automaker would be well on its way to catching Tesla in sales of electric vehicles.
    In October 2021, GM CEO Mary Barra declared the automaker would “absolutely” catch up to the U.S. EV leader by 2025. Instead, after slower-than-anticipated EV adoption across the industry and GM-specific challenges with production, software and supply chains, the company remains well behind Elon Musk’s carmaker, as well as Hyundai Motor/Kia and Ford Motor.

    While GM has withdrawn most of its previously announced electric vehicle targets, the automaker believes its EV sales momentum is finally building thanks to an expanding lineup of all-electric vehicles – spanning a price range of roughly $35,000 to more than $300,000.
    “We are definitely outstripping the industry in terms of growth, in terms of EVs,” Rory Harvey, GM president of global markets, including North America, told CNBC. “We have the most comprehensive EV lineup out of any manufacturer in the industry, in the U.S., at the moment.”

    EV sales data provided to CNBC by the Detroit automaker, which publicly reports sales quarterly, shows a notable increase for GM through August. GM sold nearly 21,000 EVs in the U.S. in July and August – almost matching its full second-quarter EV sales. GM’s EV sales through August were up about 70% compared with a year earlier.
    “It’s a step change in terms of our EV performance,” Harvey said during an interview this month at GM’s Cadillac headquarters in suburban Detroit.
    Those two back-to-back record months for GM’s EVs have it within striking distance – about 2,000 units – of Ford through August. It still remained more than 20,000 units shy of Hyundai/Kia EV sales through last month. Both Ford and Hyundai/Kia report sales monthly.

    The legacy automakers are still fighting for a distant second behind Tesla, which Motor Intelligence estimates to have sold more than 164,000 EVs during the second quarter – roughly double the sales of GM, Hyundai/Kia and Ford combined during that time.     
    Harvey declined to speculate when, or if, GM expects to overtake its competitors in EV sales, but the automaker is forecasting a strong finish to the end of the year.
    “We have momentum on our side,” Harvey said. “We anticipate quarter four will be strong in terms of EV adoption. So, we’re looking forward to that close, and looking forward to taking a disproportionate share of the upside.”

    Growing EV lineup

    GM currently offers eight “Ultium-based” EVs for consumers — referring to its electric vehicle architecture and battery technologies.
    They range from mainstream models such as the Chevy Equinox and Blazer crossovers to three large pickup trucks and luxury models from Cadillac, including a bespoke $300,000 Celestiq. Two additional Cadillac vehicles – an electric Escalade and entry-level Optiq crossover – are expected to join the lineup by year’s end, bringing the total to an industry-leading 10.
    “They’re doing what they said they were going to do. Their plan was to have Ultium and have it underneath a lot of cars relatively quickly,” said Stephanie Brinley, principal automotive analyst at S&P Global. “It didn’t come online quite as fast as they wanted it to. But this was the plan.”

    2025 Cadillac Escalade IQ
    Michael Wayland / CNBC

    For comparison, Tesla’s five vehicles range from the roughly $39,000 Model 3 sedan to the more than $100,000 Cybertruck. Hyundai, including its Genesis luxury brand and Kia sibling, has a lineup of nine cars and crossovers ranging from about $34,000 for the Hyundai Kona electric to $80,000 for the Genesis G80.
    With so many GM models, the expectations to increase sales are high. The automaker has spent billions of dollars to develop the vehicles, and now “the pressure is on to sell them,” Brinley said.
    “The pressure is on to be able to guide consumer demand and meet it,” she said. “But this is a 10- to 15-year thing to get to a place where EVs are going to be more dominant than [internal combustion engines], and it can still take time for consumers to warm up.”
    Cox Automotive expects EVs to make up roughly 10% of overall U.S. vehicle sales by the end of the year, up from 7.3% in the first quarter.

    The Chevrolet All-Electric Blazer EV.
    Scott Mlyn | CNBC

    Selling more EVs is still somewhat counterintuitive for GM: They remain far less profitable than other gas-powered models, but the automaker expects EVs to be profitable on a production, or contribution-margin basis, once it reaches output of 200,000 units by the fourth quarter.
    EVs, which also help the company to meet tightening federal fuel economy standards, have been a major growth area under Barra. The CEO has yet to fully withdraw a target announced in January 2021 that the automaker would exclusively offer all-electric vehicles for consumers by 2035.
    Harvey told CNBC the automaker is “doing a terrific amount now in terms of roadshow events, in terms of getting customers into our vehicles, making sure that our fleets at our dealerships have the right level of EVs.”
    “In the U.S., you say, ‘Butts in the seat sells cars,’ in the U.K., we say, ‘Feel at the wheel, seals the deal,” said Harvey, a U.K. native. “But it’s the same thing.”

    EV targets

    The 2035 target, which Barra has said will be guided by customer demand, was a transformational goal for GM. The Detroit automaker was the first legacy carmaker to go “all in” on EVs and reshaped its business to focus on the vehicles, including announcing several other targets that have since been withdrawn or adjusted.

    Withdrawn targets for 2025 include North American production capacity of 1 million EVs and EV profits comparable to gas models. The status of other targets, such as revenue of $50 billion from all-electric vehicles by next year, is unclear.
    GM maintains a nearer-term target of producing between 200,000 and 250,000 EVs this year, a range that was revised downward from a previously announced goal of 200,000 to 300,000.
    Harvey said the company will continue to be guided by customer demand for EVs.
    “You have to plan a number of years ahead in terms of what you’re going to do,” Harvey said. “If you reach some peaks and drops as you go through, then we have the ability to either increase production or to slightly detune production, so that we can meet the customer demand. I don’t think we’ve overinvested in EVs.”

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    How Foot Locker is waging a comeback after its breakup with Nike

    Foot Locker celebrated its 50th anniversary this month and is looking to ensure that it will survive in the decades to come.
    CEO Mary Dillon and other C-suite executives spoke with CNBC about the strategies that are working and how its new stores are improving sales.
    To reclaim its throne as the market leader in sneakers, Foot Locker must differentiate itself from competitors and ensure that it properly executes its new strategies, analysts said.

    An employee arranges Nike basketball shoes on display at the House Of Hoops by Foot Locker retail store at the Beverly Center in Los Angeles.
    Patrick T. Fallon | Bloomberg | Getty Images

    During a recent event celebrating Foot Locker’s 50th anniversary in New York City, it was hard to imagine that the legacy sneaker chain was appearing on bankruptcy watch lists as recently as March.
    Grammy-nominated rapper Coi Leray was there to celebrate the company with a special performance of her hit song “Players” as influencers, journalists and handpicked members of the company’s revamped loyalty program sipped on lavender margaritas and champagne cocktails.

    Employees – and not just those in the glare of the company’s PR team – gushed about CEO Mary Dillon as Adidas staffers celebrated the company’s new store design, which showcases individual brands instead of mixing them on nondescript shoe walls. 
    Foot Locker turns 50 while on a bit of an upswing two years into Dillon’s tenure as CEO. Last month, it released fiscal second-quarter results and full-year guidance that beat expectations, as comparable sales grew for the first time in six quarters.
    As Foot Locker revamps its sprawling store footprint, and perhaps benefits from some good timing, it’s making strides in winning back its critical brand partners like Nike and Adidas, the latter of which co-hosted the Monday night party and helped secure Leray’s performance. 

    Coi Leray performs at Foot Locker 50th anniversary event on September 16, 2024 in New York.
    Courtesy: Mike Vitelli and Isabella Picicci

    “Our last quarter was a really good indication that the hard work that we’ve been putting into the Lace Up plan is working, and that makes me feel really, really great, because I really see the next 50 years of growth for Foot Locker and our future,” Dillon told CNBC in an interview, referencing the company’s turnaround plan. “I really think that there’s layers of category growth that we can drive by just making sneakers that much more inclusive, that much more fun, that much more easy to access.”
    But as Foot Locker stares down the next 50 years, the company is still at a crossroads and must answer some fundamental questions: can it once again be the market leader in sneakers, and can it not just survive, but thrive, as brands rely less and less on wholesalers?

    “With the combination of more direct to consumer from the brands, the deepening of specialists like [Dick’s Sporting Goods], the incursion of JD Sports, Foot Locker still looks risky,” said Neil Saunders, a retail analyst and managing director of GlobalData. “In some ways, they’re just a sort of distributor of everyone else’s products.”
    Dick’s has a big private-label business and sells other categories like sporting goods, while JD Sports has strong loyalty programs and a robust fashion business, he said.
    “Whereas Foot Locker looks vulnerable because it just doesn’t have all these other strings to its bows,” said Saunders. “The truth is that although they’re getting better, there is still this question: Do we need this specialist sneaker retailer?” 

    From mall legend to has been

    Foot Locker can be traced back to the legendary retailer Frank Winfield Woolworth, whose namesake company branched into footwear in the 1960s and later opened the first Foot Locker in City of Industry, California, in September 1974. 
    From the beginning, Foot Locker was a mall retailer. Over the next two decades, it opened thousands of stores in malls across the U.S. and abroad. 
    By the turn of the century, it was the world’s largest retailer of athletic footwear and apparel, with a 20% market share in the U.S., according to a 2002 Forbes report. It was the primary place to buy Nike sneakers and was responsible for 26% to 28% of Nike’s total domestic revenue. Nike accounted for more than half of Foot Locker’s total sales at the time.
    “It was a simpler retail world. I think in the years that they were initially really experiencing strong growth, it was as simple as being in the mall, having a large mall footprint and having the right brands and they had that footprint,” said Janine Stichter, a retail analyst and managing director at BTIG, who has been covering the retail industry since 2008. “They were the No. 1 partner of Nike. Nike, at the time, was strong and growing, and I think they were really viewed as like the destination in an environment that was a lot less competitive.” 
    When Foot Locker’s chief commercial officer, Frank Bracken, joined the company in 2010, the retailer’s relationship with Nike was poised to get even stronger. By the end of the decade, 75% of the products Foot Locker sold were from Nike.
    “This was [pre-direct-to-consumer], Foot Locker was definitely ‘most favored nations’ with most of our brand partners at that time, Nike was about to go on a pretty epic run alongside Jordan, and so I actually joined at a really good time,” Bracken said in an interview.
    Bracken recalled how from 2012 to about 2018, Foot Locker’s stock rose to record highs as revenue grew at a mid-to-high single-digit compound annual growth rate. But as the 2020s neared, the company got “complacent” and began taking its position as the market leader in sneakers “for granted,” said Bracken. 
    “[We] got some weak signals about where the industry was headed, from our partners and from competition, and then Covid, you know, paralyzed everybody momentarily and I think we lost some time, candidly, during Covid,” he said. “Competition used it as an opportunity to invest in technology and capability and the business, and maybe we probably stood a little bit too still at that point in time.” 

    As consumers moved online and away from malls, Foot Locker did too little to update its e-commerce capabilities and its real estate footprint, said Bracken. At the same time, competitors were getting bigger and savvier, adjusting their real estate strategies as malls across America sputtered and died. 
    In North America, the company let its banners — Foot Locker, Footaction and Champs Sports — overlap too heavily with each other in terms of assortment, location and marketing, and brands “started to take note of that,” said Bracken.
    At the end of 2021, Foot Locker was winding down its Footaction business and had acquired WSS – an off-mall athletic apparel retailer that caters to the Hispanic community – to help differentiate itself from competitors.
    But by then, it was too late.
    Nike, carrying out a new strategy to cut off wholesalers and sell directly to consumers through its own websites and stores, had started reducing the number of sneakers it was selling to Foot Locker, the company said on an earnings call in February 2022. It chose instead to reserve its best products for Foot Locker’s primary competitors: Dick’s and JD Sports. 
    For a company that relied almost exclusively on Nike, the change was devastating and posed an existential threat. By the end of fiscal 2022, comparable sales had fallen 7.2% in North America. The declines would only mount in the quarters to come. 

    A new leader arrives

    When Dillon, the former CEO of Ulta Beauty, took the helm of Foot Locker in September 2022, Wall Street breathed a collective sigh of relief. Highly regarded among peers, Dillon was known for her ability to win over brands, and appeared to have the necessary chops to turn Foot Locker around. 
    “In a way, she soothed investors … they know that she can deliver and they know that she understands retail and the sector and she’s got good operation control and all the rest of it,” said Saunders from GlobalData. “That’s obviously starting to come through a little bit more now.”
    In her first major public event as CEO, Dillon hosted an investor day last March where she touted a revitalized relationship with Nike. She pledged the “fruits of our renewed commitment to one another” would begin to show up in results by the end of the year. 
    She outlined her Lace Up turnaround strategy, which focused on four key pillars: better marketing, a new real estate plan, a revamped loyalty program and an emphasis on online sales. 
    But as the year wore on, the macroeconomic picture worsened, which hit Foot Locker hard because about half of its customers are considered low income. The company went on to cut its guidance twice, suspend its dividend and delay a key financial target that it outlined at its investor day. 
    “As a CEO, it’s hard to go out and make a commitment and have to change it, but because I believe so much in the plan and where we’re heading, I felt confident that it was the right thing to do,” said Dillon. “Now I believe we’ve kind of worked past that.”
    Beyond the macro situation, the company likely underestimated the challenges it was facing, and how much the Nike breakup would hurt its business, Saunders and Stichter said. 
    “You don’t really know until you do it how impactful that’s going to be and I think that they thought they’d be able to offset more of that loss more quickly,” said Stichter. 

    Signs of a turnaround

    While Foot Locker’s fiscal 2023 turned out worse than it originally anticipated, the company is seeing some of its turnaround efforts start to take hold. While Nike is still its biggest partner, it’s focusing more on other brands, such as upstarts like Hoka and On and legacy incumbents like Birkenstock and Ugg.  
    Online sales are growing. Foot Locker plans to relaunch its mobile app at the end of the year, and it recently unveiled its revamped loyalty program FLX, which allows customers to earn discounts, access to product launches and perks like free returns. 
    “We know that we only capture a fraction of this annual sneaker spend that our existing customers spend on sneakers,” said Kim Waldmann, Foot Locker’s chief customer officer. “[FLX] isn’t necessarily about getting you to buy 10 more sneakers per year, it’s an opportunity for us to drive share of wallet consolidation by the fact that you’re getting value back in shopping with us.” 
    When Waldmann started in the role last year, she learned from consumer research that customers loved having access to a wide variety of brands at Foot Locker’s stores and enjoyed the product knowledge that its employees, known as “Stripers,” had. 
    “The thing that they wanted to see more from us is like we’re just not top of mind. A lot of consumers just hadn’t seen us in a while,” said Waldmann. “And I think that was really the opportunity to take what is an iconic brand and make it influential and top of mind again, and that’s really the work that we’ve been doing.” 
    The company is marketing more toward women and has partnered with stars such as Leray, who was part of Foot Locker’s spring style and trend campaign. 
    Perhaps most critically, Foot Locker is finally doing the work necessary to overhaul its aging store fleet, which is responsible for about 80% of its sales. Since Dillon took over, she’s closed around 500 stores, opened about 200 new shops and remodeled or relocated another 200 or so doors. Earlier this year, Foot Locker unveiled its “reimagined” store concept and its plans to move away from its traditional format, which tends to be two walls of shoes with a middle section used for trying on sneakers. 

    Foot Locker store location on 34th street in New York City.
    Courtesy: Foot Locker

    As more and more brands move away from wholesalers in favor of their own stores and website, the strategy change was critical to Foot Locker’s survival. Its business does not work if it doesn’t have the support of its brand partners, which want to ensure that their assortments are showcased individually – not mixed together with competitors. 
    “When you talk to a company like On they’re like, yeah, we’re selective about who we sell to, we don’t want to be just another shoe on the wall,” said Stichter. “They’re really investing behind putting more signage and just investing in the displays … that’s what makes the brands want to work with them.” 
    Since May, Foot Locker has brought the new design concept to at least 80 of its stores, which it says have better comparable sales and margins compared with the balance of the chain. The company is working to refresh two-thirds of its global Foot Locker and Kids Foot Locker doors by the end of 2025, and said 40% of its North American footprint is now off-mall. 
    The new store approach couldn’t come at a better time for Foot Locker. Over the last year, Nike has begun to walk back its direct selling strategy after acknowledging that it went too far in cutting out wholesalers. 
    “Nike is our largest partner and they’re the largest in the industry so for us, it’s also about, how do we make sure that we have a really terrific long-term growth relationship with Nike? And I’m proud about the fact that we’re going back to growth [with Nike] starting in the fourth quarter of this year,” said Dillon. “Also … at the same time, Nike has been very public about the role of retailers and the importance of that for them as well so maybe it was good timing, right?” 

    The battle between extinction and survival

    As Foot Locker looks ahead to the next 50 years, its ability to survive is still up for debate. Nike is at a low point and is cozying back up to the wholesale partners, but when it rebounds, will it cut off those retailers once again? 
    Absent a robust private-label business, Foot Locker’s success is also highly dependent on the performance of its brand partners, which leaves it with less control over its own destiny than other retailers that have recently made big comebacks, such as Abercrombie & Fitch. 
    If Nike has a major product launch, it can be a boon for Foot Locker’s sales, but if innovation dries up, Foot Locker will suffer. It has found itself in a similar quandary facing other multi-brand retailers, such as Macy’s, which has also struggled to find itself in a post-mall world. 
    When asked if Foot Locker can survive another 50 years, GlobalData’s Saunders said the company is the “most at risk of extinction” of its peers. Stichter disagreed. 
    “One thing we’ve learned is that consumers really do want a multi-brand experience. There are people who go to Nike.com or Adidas.com but people really like having that selection, having the service,” said Stichter. “So there is a reason for a concept like Foot Locker to exist. I think it all just depends on, can they execute well and be one of the preferred places for consumers who are looking for choice.”

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    China stimulus calls are growing louder — inside and outside the country

    The world’s second-largest economy has remained under pressure from a real estate slump and tepid consumer confidence.
    “We believe the risk that China will miss the ‘around 5%’ full-year GDP growth target is on the rise, and thus the urgency for more demand-side easing measures is also increasing,” Goldman Sachs analysts said in a report.
    “The current policy to stabilize the property market is clearly not enough,” said Xu Gao, Beijing-based chief economist at Bank of China International.

    Local residents with umbrellas walk out of a metro station in rain during morning rush hour on September 20, 2024 in Beijing, China. 
    China News Service | China News Service | Getty Images

    BEIJING — More economists are calling for China to stimulate growth, including those based inside the country.
    China should issue at least 10 trillion yuan ($1.42 trillion) in ultra-long government bonds in the next year or two for investment in human capital, said Liu Shijin, former deputy head of the Development Research Center at the State Council, China’s top executive body.

    That’s according to a CNBC translation of Liu’s Mandarin-language remarks available on financial data platform Wind Information.
    His presentation Saturday at Renmin University’s China Macroeconomy Forum was titled: “A basket of stimulus and reform, an economic revitalization plan to substantially expand domestic demand.”
    Liu said China should make a greater effort to address challenges faced by migrant workers in cities. He emphasized Beijing should not follow the same kind of stimulus as developed economies, such as simply cutting interest rates, because China has not yet reached that level of slowdown.

    After a disappointing recovery last year from the Covid-19 pandemic, the world’s second-largest economy has remained under pressure from a real estate slump and tepid consumer confidence. Official data in the last two months also points to slower growth in manufacturing. Exports have been the rare bright spot.
    Goldman Sachs earlier this month joined other institutions in cutting their annual growth forecast for China, reducing it to 4.7% from 4.9% estimated earlier. The reduction reflects recent data releases and delayed impact of fiscal policy versus the firm’s prior expectations, the analysts said in a Sept. 15 note.

    “We believe the risk that China will miss the ‘around 5%’ full-year GDP growth target is on the rise, and thus the urgency for more demand-side easing measures is also increasing,” the Goldman analysts said.
    China’s highly anticipated Third Plenum meeting of top leaders in July largely reiterated existing policies, while saying the country would work to achieve its full-year targets announced in March.
    Beijing in late July announced more targeted plans to boost consumption with subsidies for trade-ins including upgrades of large equipment such as elevators.
    But several businesses said the moves were yet to have a meaningful impact. Retail sales rose by 2.1% in August from a year ago, among the slowest growth rates since the post-pandemic recovery.

    Real estate drag

    China in the last two years has also introduced several incremental moves to support real estate, which once accounted for more than a quarter of the Chinese economy. But the property slump persists, with related investment down more than 10% for the first eight months of the year.
    “The elephant in the room is the property market,” said Xu Gao, Beijing-based chief economist at Bank of China International. He was speaking at an event last week organized by the Center for China and Globalization, a think tank based in Beijing.
    Xu said demand from China’s consumers is there, but they don’t want to buy property because of the risk the homes cannot be delivered.
    Apartments in China have typically been sold ahead of completion. Nomura estimated in late 2023 that about 20 million such pre-sold units remained unfinished. Homebuyers of one such project told CNBC earlier this year they had been waiting for eight years to get their homes.
    To restore confidence and stabilize the property market, Xu said that policymakers should bail out the property owners.
    “The current policy to stabilize the property market is clearly not enough,” he said, noting the sector likely needs support at the scale of 3 trillion yuan, versus the roughly 300 billion yuan announced so far.

    Different priorities

    China’s top leaders have focused more on bolstering the country’s capabilities in advanced manufacturing and technology, especially in the face of growing U.S. restrictions on high tech.
    “While the end-July Politburo meeting signaled an intention to escalate policy stimulus, the degree of escalation was incremental,” Gabriel Wildau, U.S.-based managing director at consulting firm Teneo, said in a note earlier this month.
    “Top leaders appear content to limp towards this year’s GDP growth target of ‘around 5%,’ even if that target is achieved through nominal growth of around 4% combined with around 1% deflation,” he said.
    In a rare high-level public comment about deflation, former People’s Bank of China governor Yi Gang said in early September that leaders “should focus on fighting the deflationary pressure” with “proactive fiscal policy and accommodative monetary policy.”
    However, Wildau said that “Yi was never in the inner circle of top Chinese economic policymakers, and his influence has waned further since his retirement last year.”

    Local government constraints

    China’s latest report on retail sales, industrial production and fixed asset investment showed slower-than-expected growth.
    “Despite the surge in government bond financing, infrastructure investment growth slowed markedly, as local governments are constrained by tight fiscal conditions,” Nomura’s Chief China Economist Ting Lu said in a Sept. 14 note.
    “We believe China’s economy potentially faces a second wave of shocks,” he said. “Under these new shocks, conventional monetary policies reach their limits, so fiscal policies and reforms should take the front seat.”
    The PBOC on Friday left one of its key benchmark rates unchanged, despite expectations the U.S. Federal Reserve’s rate cut earlier this week could support further monetary policy easing in China. Fiscal policy has been more restrained so far.
    “In our view, Beijing should provide direct funding to stabilize the property market, as the housing crisis is the root cause of these shocks,” Nomura’s Lu said. “Beijing also needs to ramp up transfers [from the central government] to alleviate the fiscal burden on local governments before it can find longer-term solutions.”
    China’s economy officially still grew by 5% in the first half of the year. Exports surged by a more-than-expected 8.7% in August from a year earlier.
    In the “short term, we must really focus to be sure [to] successfully achieve this year’s 2024 growth goals, around 5%,” Zhu Guangyao, a former vice minister of finance, said at the Center for China and Globalization event last week. “We still have confidence to reach that goal.”
    When asked about China’s financial reforms, he said it focuses on budget, regional fiscal reform and the relationship between central and local governments. Zhu noted some government revenue had been less than expected.
    But he emphasized how China’s Third Plenum meeting focused on longer-term goals, which he said could be achieved with GDP growth between 4% and 5% annually in the coming decade. More

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    Why this top fund manager says the best investment this year is ‘the hedge against political cycles’

    A major exchange-traded fund and mutual fund manager finds the winning gold trade isn’t talked about as much as the artificial intelligence trade — but maybe it should be.
    VanEck CEO Jan van Eck thinks the best investment this year is “the hedge against political cycles.” To him, that means investing in gold. 

    “It is quietly the best performing asset this year,” Van Eck told CNBC’s “ETF Edge” from the Future Proof conference in Huntington Beach on Monday.
    Gold hit another record on Friday, its 37th record this year. As of Friday’s market close, it is up 28% since the start of the year.
    Van Eck, whose firm runs the VanEck Gold Miners ETF, expects foreign investments in bullion will continue to give the commodity a boost. It should also help in lifting gold miners higher, which started the year lagging the commodity. But as of Friday, the VanEck Gold Miners ETF has started to outperform, up 31% this year.
    “I think you own both because the miners, if they catch up at all, it’s going to rip,” he said.
    As for the AI trade, van Eck says it’s “amazing” how investors refuse to give up on it.

    “It’s like part of people’s model portfolios, or core portfolios, is to have this tactical overweight to semis. And some of our biggest clients actually bought on the dip over the last week or two,” the VanEck CEO said.
    Last month, his firm launched the VanEck Fabless Semiconductor ETF. It’s a companion to its VanEck Semiconductor ETF that excludes companies that run their own foundries, such as Intel.
    FactSet reports the new ETF’s top holdings as Nvidia, Broadcom and Advanced Micro Devices as of Friday.
    “Why spend billions of dollars on building the chips if you don’t have to?” van Eck said. “Nvidia doesn’t build its own chips. So that’s another kind of investment strategy.”
    Since launching on Aug. 28, the VanEck Fabless Semiconductor ETF is up a half percent.
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    Boeing machinists on picket lines prepare for lengthy strike: ‘I can last as long as it takes’

    Boeing machinists on the picket lines said they have saved money for the strike and plan to pick up temporary jobs to make ends meet.
    More than 30,000 Boeing machinists walked off the job Sept. 13 after a tentative contract was rejected in a nearly 95% vote.
    The strike brought most of Boeing’s aircraft production to a halt and is costing the company $50 million a day, according to Bank of America estimates.

    Boeing factory workers gather on a picket line during the first day of a strike near the entrance of a production facility in Renton, Washington, U.S., September 13, 2024. 
    Matt Mills Mcknight | Reuters

    RENTON, Wash. — Cash-strapped Boeing is facing mounting costs from an ongoing machinist strike as workers push for higher pay. A failure to get a deal done could be even more expensive.
    In the shadow of a factory outside Seattle where Boeing makes its best-selling planes, picketing Boeing machinists told CNBC they have saved up money and have taken or are considering taking side jobs in landscaping, furniture moving or warehouse work to make ends meet if the strike is goes on much longer.

    The work stoppage by Boeing’s factory workers in the Pacific Northwest just entered its second week. The financial cost of the strike on Boeing depends on how long it lasts, though ratings agencies have warned that the company could face a downgrade if it drags on too long.
    That would add to the borrowing costs of the company, already $60 billion in debt. Boeing has burned through about $8 billion so far this year in the wake of a near-catastrophic door plug blowout from one of its 737 Max planes in January.
    Boeing hasn’t turned an annual profit since 2018, and its new CEO Kelly Ortberg is trying to restore the company’s reputation after months of manufacturing crises that have slowed deliveries to customers, depriving it of cash.

    Boeing 737 Max planes sit at the airport in Renton, Washington.
    Leslie Josephs | CNBC

    At the local union office in Renton, machinists were preparing for what may become a lengthy strike: Union members carried in large pallets of bottled water, while someone mixed a giant tuna salad in the kitchen to make sandwiches for workers. Union vans visited demonstration sites around Renton offering transportation to bathroom breaks for workers on picket duty. Burn barrels provided heat for chilly overnight pickets.
    Many workers spoke of their love for their jobs but fretted about the high cost of living in the Seattle area, where the majority of Boeing’s aircraft are made.

    The median home price in Washington state increased about 142% to $613,000 as of 2023, from $253,800 a decade earlier, according to the state’s Office of Financial Management. That outpaces the roughly 55% increase nationally over that period, according to data from the Federal Reserve Bank of St. Louis.
    “We can’t afford [to own] a home,” said Jake Meyer, a Boeing mechanic who said he will start driving for a food delivery service during the strike and is looking at picking up odd jobs such as moving furniture. Meyer said although he’s striking for higher pay from Boeing, he enjoys the job of building airplanes.
    “I take pride in my work,” he said.
    Another Boeing machinist said he has been saving for months, forgoing things such as restaurants and paying three months of mortgage payments early.
    “I can last as long as it takes,” said the worker, who spoke on the condition of anonymity.

    $50 million a day

    More than 30,000 Boeing machinists walked off the job at midnight Sept. 13 after turning down a tentative labor deal in a nearly 95% vote — 96% voted in favor of a strike. They received their last paychecks Thursday, and health benefits are set to end on Sept. 30. A strike fund from the union will soon give them $250 a week.
    The strike is costing Boeing some $50 million a day, according to estimates by Bank of America aerospace analyst Ron Epstein. The strike halted production of most of Boeing’s aircraft, and that is rippling out to the aerospace giant’s vast network of suppliers, some of which have already been told to halt shipments. Boeing is still making 787 Dreamliners at its non-union factory in South Carolina.

    Boeing Machinists union members count votes to accept or reject a proposed contract between Boeing and union leaders and whether or not to strike if the contract is rejected, at the Aerospace Machinists Union Hall in Seattle, Washington, on September 12, 2024. 
    Jason Redmond | AFP | Getty Images

    The battle pits a struggling Boeing against a workforce seeking wage increases and other improvements. Boeing’s most recent offer included 25% general wage increases over a four-year deal and was endorsed by the machinists union, the International Association of Machinists and Aerospace Workers District 751.
    Workers said they were looking for wage increases closer to the 40% that the union had proposed as well as annual bonuses and a restoration of pensions lost more than a decade ago.
    Boeing and the union were at the negotiation table this week, but both Boeing and union negotiators have said they were disappointed with the lack of progress.
    “We continue to prioritize the issues you defined in the most recent survey,” union negotiators wrote to members Wednesday, “yet we are deeply concerned that the company has not addressed your top concerns. No meaningful progress was made during today’s talks.”
    Ortberg, who is just six weeks on the job, announced temporary furloughs this week of tens of thousands of Boeing staff, including managers and executives, on the heels of a hiring freeze and other cost-cutting measures announced this week.
    “During mediation with the union this week, we continued our good faith efforts to engage the union’s bargaining committee in meaningful negotiations to address the feedback we’ve heard from our team,” Ortberg said in a note to staff Friday.
    “While we are disappointed the discussions didn’t lead to more progress, we remain very committed to reaching an agreement as soon as possible that recognizes the hard work of our employees and ends the work stoppage in the Pacific Northwest,” Ortberg wrote. 
    The strike, which includes Boeing machinists in the Seattle area, Oregon and a few other locations, is just the latest in a series of labor battles in recent years that has included actors, autoworkers, port workers and airline employees, all of which have won raises after strikes or strike threats.
    The Biden administration has encouraged Boeing and the union to reach a deal.
    “I do believe that both parties want to get to a resolution here, and hoping to see one that makes sense for the workers and it works for a company that really needs to find its way forward on so many fronts,” Transportation Secretary Pete Buttigieg told CNBC’s “Squawk Box” on Thursday.

    Tight labor market

    Boeing is facing a tight labor market. During the last strike, in 2008, which lasted less than two months, the company was in better financial shape, and there was less job competition in the area.
    One Boeing supplier told CNBC that furloughing or laying off workers would cause problems for months down the road because it takes so long to train staff on such technical and detailed work.
    During the pandemic, Boeing and its suppliers shed thousands of workers. They’ve since struggled to hire and train workers in time for the resurgence in air travel and aircraft demand.
    “You’re in an environment where skilled, technical labor is hard to get right now, particularly in aerospace and defense,” said Bank of America’s Epstein. “So what do you do to not only retain them but attract them? If they really want a pension, maybe that gives you a competitive advantage over people who are trying to attract talent.”

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    Fed Governor Waller says inflation softening faster than he expected put him in half-point-cut camp

    Fed Reserve Governor Christopher Waller told CNBC that he supported a 50 basis point rate reduction at this week’s meeting because inflation is easing faster than he had expected.
    Waller indicated there are a number of scenarios that could unfold relative to future cuts, with each depending on how the economic data runs.

    Federal Reserve Governor Christopher Waller said Friday he supported a half percentage point rate cut at this week’s meeting because inflation is falling even faster than he had expected.
    Citing recent data on consumer and producer prices, Waller told CNBC that the data is showing core inflation, excluding food and energy, in the Fed’s preferred measure is running below 1.8% over the past four months. The Fed targets annual inflation at 2%.

    “That is what put me back a bit to say, wow, inflation is softening much faster than I thought it was going to, and that is what put me over the edge to say, look, I think 50 [basis points] is the right thing to do,” Waller said during an interview with CNBC’s Steve Liesman.
    Both the consumer and producer price indexes showed increases of 0.2% for the month. On a 12-month basis, the CPI ran at a 2.5% rate.
    However, Waller said the more recent data has shown an even stronger trend lower, thus giving the Fed space to ease more as it shifts its focus to supporting the softening labor market.
    A week before the Fed meeting, markets were overwhelmingly pricing in a 25 basis point cut. A basis point equals 0.01%.
    “The point is, we do have room to move, and that is what the committee is signaling,” he said.

    The Fed’s action to cut by half a percentage point, or 50 basis points, brought its key borrowing rate down to a range between 4.75%-5%. Along with the decision, individual officials signaled the likelihood of another half point in cuts this year, followed by a full percentage point of reductions in 2025.
    Fed Governor Michelle Bowman was the only Federal Open Market Committee member to vote against the reduction, instead preferring a smaller quarter percentage point cut. She released a statement Friday explaining her opposition, which marked the first “no” vote by a governor since 2005.
    “Although it is important to recognize that there has been meaningful progress on lowering inflation, while core inflation remains around or above 2.5 percent, I see the risk that the Committee’s larger policy action could be interpreted as a premature declaration of victory on our price stability mandate,” Bowman said.
    As for the future path of rates, Waller indicated there are a number of scenarios that could unfold, with each depending on how the economic data runs.
    Futures market pricing shifter after Waller spoke, with traders now pricing in about a 50-50 chance of another half percentage point reduction at the Nov. 6-7 meeting, according to the CME Group’s FedWatch.
    “I was a big advocate of large rate hikes when inflation was moving much, much faster than any of us expected,” he said. “I would feel the same way on the downside to protect our credibility of maintaining a 2% inflation target. If the data starts coming in soft and continues to come in soft, I would be much more willing to be aggressive on rate cuts to get inflation closer to our target.”
    The Fed gets another look at inflation data next week when the Commerce Department releases the August report on the personal consumption expenditures price index, the central bank’s preferred measure. Chair Jerome Powell said Wednesday that the Fed’s economists expect the measure to show inflation running at a 2.2% annual pace. A year ago, it had been at 3.3%. More

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    Boeing’s defense unit chief Colbert is departing, CEO says

    Boeing’s new CEO Kelly Ortberg said the company’s defense unit chief Ted Colbert is leaving Boeing and that a replacement would be named later.
    The defense unit accounted for about 40% of Boeing’s revenue in the first half of the year.

    Former CEO for Boeing’s defense, space and security subdivision Ted Colbert speaks during a press conference in Dubai on Nov. 16, 2019.
    Karim Sahib | AFP | Getty Images

    The head of Boeing’s defense unit Ted Colbert is leaving the company effective immediately, said CEO Kelly Ortberg, marking his first major executive change since he took the top job in early August.
    “At this critical juncture, our priority is to restore the trust of our customers and meet the high standards they expect of us to enable their critical missions around the world,” Ortberg said in a staff memo on Friday. “Working together we can and will improve our performance and ensure we deliver on our commitments.”  

    Ortberg thanked Colbert for his 15 years of service at Boeing and said the unit’s Chief Operating Officer Steve Parker would take over until the company names Colbert’s replacement.
    Boeing’s defense, space and security unit generated nearly 40% of Boeing’s revenue in the first half of this year, but it has struggled with production problems and cost overruns, including on the new 747s that will serve as Air Force One aircraft. In the space sector, Boeing’s Starliner is returning without the NASA astronauts who took it to the International Space Station in June. They will instead take SpaceX’s Crew-9 vehicle back, NASA said last month.
    Colbert did not immediately respond to CNBC’s request for comment.

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