Raphael Stevens

An early-warning system for recessions would be worth trillions of dollars. Governments could dole out stimulus at just the right time; investors could turn a nice profit. Unfortunately, the process for calling a recession is too slow to be useful. America’s arbiter, the National Bureau of Economic Research, can take months to decide. Other countries simply look at gdp data, which emerge with a lag. More

Kamala Harris’s price-gouging ban would be the first of its kind nationally in America. It is far from clear that such a policy is required. But it would have precedent at lower levels of government: 37 states have rules to stop firms from “excessive” price rises. Those decrying Ms Harris’s idea as a step towards communism can be reassured that many are Republican strongholds, from Arkansas to Idaho. More

People line up as they wait for the JobNewsUSA.com South Florida Job Fair to open at the Amerant Bank Arena on June 26, 2024, in Sunrise, Florida. 
Joe Raedle | Getty Images

There’s a lot of debate about how much signal to take from the 818,000 downward revisions to U.S. payrolls — the largest since 2009. Is it signaling recession?
A few facts worth considering:

By the time the 2009 revisions came out (824,000 jobs were overstated), the National Bureau of Economic Research had already declared a recession six months earlier.
Jobless claims, a contemporaneous data source, had surged north of 650,000, and the insured unemployment rate had peaked at 5% that very month.
GDP as reported at the time had already been negative for four straight quarters. (It would subsequently be revised higher in the two of those quarters, one of which was revised higher to show growth, rather than contraction. But the economic weakness was broadly evident in the GDP numbers and ISMs and lots of other data.)

The current revisions cover the period from April 2023 to March, so we don’t know whether current numbers are higher or lower. It may well be that the models used by the Bureau of Labor Statistics are overstating economic strength at a time of gathering weakness. While there are signs of softening in the labor market and the economy, of which this could well be further evidence, here’s how those same indicators from 2009 are behaving now:

No recession has been declared.
The 4-week moving average of jobless claims at 235,000 is unchanged from a year ago. The insured unemployment rate at 1.2% has been unchanged since March 2023. Both are a fraction of what they were during the 2009 recession.
Reported GDP has been positive for eight straight quarters. It would have been positive for longer if not for a quirk in the data for two quarters in early 2022.

As a signal of deep weakness in the economy, this big revision is, for now, an outlier compared to the contemporaneous data. As a signal that job growth has been overstated by an average of 68,000 per month during the revision period, it is more or less accurate.
But that just brings average employment growth down to 174,000 from 242,000. How the BLS parcels out that weakness over the course of the 12-month period will help determine if the revisions were concentrated more toward the end of the period, meaning they have more relevance to the current situation.
If that is the case, it is possible the Fed might not have raised rates quite so high. If the weakness continued past the period of revisions, it is possible Fed policy might be easier now. That is especially true if, as some economists expect, productivity numbers are raised higher because the same level of GDP appears to have occurred with less work.
But the inflation numbers are what they are, and the Fed was responding more to those during the period in question (and now) than jobs data.

So, the revisions might modestly raise the chance of a 50 basis-point rate reduction in September for a Fed already inclined to cut in September. From a risk management standpoint, the data might add to concern that the labor market is weakening faster than previously thought. In the cutting process, the Fed will follow growth and jobs data more closely, just as it monitored inflation data more closely in the hiking process. But the Fed is likely to put more weight on the current jobless claims, business surveys, and GDP data rather than the backward looking revisions. It’s worth noting that, in the past 21 years, the revisions have only been in the same direction 43% of the time. That is, 57% of  the time, a negative revisions is followed the next year by a positive one and vice versa.
The data agencies make mistakes, sometimes big ones. They come back and correct them often, even when it’s three months before an election.
In fact, economists at Goldman Sachs said later Wednesday that they think the BLS may have overstated the revisions by as much as half a million. Unauthorized immigrants who now are not in the unemployment system but were listed initially as employed amounted for some of the discrepancy, along with a general tendency for the initial revision to be overstated, according to the Wall Street firm.
The jobs data could be subject to noise from immigrant hiring and can be volatile. But there is a vast suite of macroeconomic data that, if the economy were tanking like in 2009, would be showing signs of it. At the moment, that is not the case. More

“The vast majority” of participants at the July 30-31 meeting “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” the summary stated.
Markets are fully pricing in a September cut, which would be the first since the emergency easing in the early days of the Covid crisis.

Federal Reserve officials at their July meeting moved closer to a long-awaited interest rate reduction, but stopped short while indicating that a September cut had grown increasingly probable, minutes released Wednesday showed.
“The vast majority” of participants at the July 30-31 meeting “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” the summary said.

Markets are fully pricing in a September cut, which would be the first since the emergency easing in the early days of the Covid crisis.
While all voters on the rate-setting Federal Open Market Committee voted to hold benchmark rates steady, there was an inclination among an unspecified number of officials to start easing at the July meeting rather than waiting until September.
The document stated that “several [meeting participants] observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision.”
One basis point is 0.01 percentage point, so a 25 basis point reduction would be equivalent to a quarter percentage point.
In the parlance the Fed uses in its minutes, which do not mention names nor specify how many policymakers felt a certain way, “several” is a relatively small number.

However, the summary made clear that officials were confident about the direction of inflation and are ready to start easing policy if the data continues to cooperate.
The sentiment was twofold: Inflation markers had shown price pressures easing considerably, while some members noted concerns over the labor market as well as the struggles that households, particularly those at the lower end of the income spectrum, were having in the current environment.
“With regard to the outlook for inflation, participants judged that recent data had increased their confidence that inflation was moving sustainably toward 2 percent,” the minutes stated. “Almost all participants observed that the factors that had contributed to recent disinflation would likely continue to put downward pressure on inflation in coming months.”
On the labor market, “many” officials noted that “reported payroll gains might be overstated.”
Earlier Wednesday, the Bureau of Labor Statistics reported, in a preliminary revision of the nonfarm payroll numbers from April 2023 through March 2024, that gains may have been overstated by more than 800,000.
“A majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goal had decreased,” the minutes said. “Some participants noted the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration.”
In its post-meeting statement, the committee noted that job gains had moderated and that inflation also had “eased.” However, it chose to hold the line on its benchmark funds rate, which is currently targeted in a 5.25%-5.50% range, its highest in 23 years.
Markets rose the day of the Fed meeting but cratered in following sessions on worries that the central bank was moving too slowly in easing monetary policy.
The day after the meeting, the Labor Department reported an unexpected spike in unemployment claims, while a separate indicator showed the manufacturing sector contracted more than expected. Things got worse when the nonfarm payrolls report for July showed job creation of just 114,000 and another tick up in the unemployment rate to 4.3%.
Calls grew for the Fed to cut quickly, with some even suggesting that the central bank do an intermeeting move to head off worries that the economy was sinking fast.
However, the panic was short-lived. Subsequent data releases showed jobless claims drifting back down to normal historical levels while inflation indicators showed price pressures easing. Retail sales data also was better than expected, assuaging worries of consumer pressure.
More recent indicators, though, have pointed to stresses in the labor market, and traders largely expect the Fed to begin cutting rates in September.

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Algerina Perna | Baltimore Sun | MCT | Getty Images

The explosion of online sports betting is taking a toll on personal finances, particularly among those who are financially distressed.
That’s the conclusion of a recent paper, “Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households.” The authors found that sports betting has exploded since the Supreme Court overturned a federal law prohibiting it in 2018. Since then, 38 states have legalized it and it has become a growth industry, generating more than $120 billion in total bets and $11 billion in revenue in 2023 alone.

That has put considerable sums into state coffers, but it has come at a notable personal expense to gamblers and their families. Those who participate tend to invest less and have higher debt levels.
“Our results show that not only does sports betting lead to increased betting activity, but it also leads to higher credit card balances, less available credit, a reduction in net investments, and an increase in lottery play,” the authors concluded.
The authors noted these negative effects were particularly noticeable among “financially constrained households.” That term was not defined, but the implication is that this group typically has lower savings, lower cash levels to cover expenses, higher debt levels and lower net worth.

Investing takes a hit

The authors used a quarterly panel of 230,171 households in states that have legalized gambling. About 7.7% of the households made online sports bets, with a household average of $1,100 a year.
Not surprisingly, people who gamble on sports have less money to invest, particularly in the stock market. The authors found a large decrease in net deposits to traditional brokerage accounts. “Two to three years after betting becomes legal, there is a noticeable drop in net investment relative to states where betting is not yet legal,” the report said.

The authors estimate that legalization reduces net investments by bettors by nearly 14%, and that every dollar spent on sports betting reduces net investment by $2.13.

More debt, overdrawn bank accounts

But the implications are much broader.
“The increase in betting and consumption drives an increase in financial instability in terms of decreased credit availability, increased credit card debt, and a higher incidence rate of overdrawing bank accounts,” the authors said.
This is particularly true for financially constrained households. The higher credit card debt indicates that these households are not just shifting funds from one type of entertainment to another (for example, shifting money from betting on lotteries to betting on sports). Instead, they are “becoming more indebted to fund an addictive losing proposition.”
Again, lower-income households suffer disproportionately. The bottom one-third of households by income had the largest increase in spending on sports gambling relative to income.

Bettors vs. nonbettors

There were notable differences between the characteristics of bettors and nonbettors.
Both groups had similar incomes, but bettors displayed riskier behavior. They were more than twice as likely as nonbettors to have ever invested in crypto or ever overdrawn their bank account. They were four times more likely to have played online poker or purchased lottery tickets.
These results are consistent with several prior studies. One 2009 study concluded gambling‐related activity is greater among low‐income investors, who tend to excessively bet on state lotteries and also are overweight risky, lottery‐type stocks.

In a pickle

The authors note the quandary for policymakers. By continuing to legalize and expand activities such as sports gambling — where the vast majority lose money — the government is sending conflicting signals.
On one hand, the government attitude is: These are adults, they have a right to spend their money any way they want to. And we need the money.
But governments have other priorities they are promoting, including encouraging saving money for retirement, that are clearly in conflict with promoting gambling.
“As legalized sports betting gains traction, it potentially undermines government efforts aimed at promoting savings through tax incentives and financial literacy programs,” the authors concluded.
“Policymakers should consider how the allure of betting might divert funds from savings and investment accounts, particularly for constrained households, which can affect household financial stability and long-term wealth accumulation.”

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