Finance

Could 2024 be a year unlike any in America’s post-war economic history? Never since 1945 has annual inflation, measured by the consumer-price index, fallen from above 5% to below 3% without a recession at the time of the fall or within the subsequent 18 months.Yet professional forecasters surveyed by the Federal Reserve Bank of Philadelphia say that at the end of 2024 headline annual inflation will be 2.5%, whereas real GDP will grow by 1.7% over the course of the year—roughly in line with its long-term trend. Financial markets are rejoicing at the prospect of such a “soft landing”.The Fed has been fighting inflation by raising interest rates since March 2022. Monetary tightening usually provokes a recession because disinflating an economy is much like disinflating a balloon: it is hard to do gently. There have been instances where rate rises have not led to a downturn, such as in the mid-1980s and late 1990s (and other times where events, such as the covid-19 pandemic, interjected). But on those occasions inflation had not reached anything like the highs it did in 2022. That the Fed raised interest rates so fast in 2022 and 2023 would make a soft landing all the more exceptional.When would it become clear that the economy had landed? Inflation data are revised less than other economic data, so the Fed hitting its target would probably happen in plain sight. Given how rare it is for inflation to stand at precisely 2%, it would be fair to declare the goal met should both annual headline and annual core inflation, which excludes volatile food and energy prices, fall beneath 2.5% on the Fed’s preferred price index, which rises a little slower than the CPI.In the past three months America’s core inflation has risen at an annualised pace of just 2.2%. Should that continue, the annual measure would fall below 2.5% in February. Without, say, an oil-price surge, headline inflation would probably also be at target.The other criterion for a soft landing—dodging a downturn—is harder to judge. Recessions tend only to be declared long after they have struck. In the past, the most reliable real-time indicator that one is beginning has been the “Sahm rule”. It is triggered when the three-month moving average of the unemployment rate rises by 0.5 percentage points against its low over the preceding year. The rule has identified every American recession since 1960, with no false positives. Today unemployment is up by 0.3 percentage points from its mid-2023 low.The Sahm rule could break down this time, as labour markets have been exceptionally tight since the pandemic. It would be only natural for the unemployment rate to rise a little. Claudia Sahm, who invented the rule, has warned that it is distorted by the return to the labour force of people who left during the pandemic, something that pushes up the unemployment rate even in the absence of layoffs.But in that case the rule will deliver an incorrect recession call, rather than missing a downturn. If the Fed hits its inflation target without the Sahm rule being triggered, it would therefore be safe to declare the plane had touched down.It would not, however, have come to a stop. In the early 1950s and the early 1970s, recessions struck nearly a full year and a half after inflation fell. Nor would policymakers have finished adjusting the controls. At its December meeting the Fed signalled that it expected to cut interest rates by three quarters of a percentage point in 2024.It wants to loosen monetary policy in part because it believes that the natural resting-point of interest rates is lower than their current level. If the Fed is wrong, interest-rate cuts will act as an undue stimulus and inflation will reaccelerate. Fiscal policy will also still look on a crisis setting, given America’s enormous underlying deficit, which reached 7.5% of GDP during the 2023 fiscal year. Cutting that significantly could hurt.image: The EconomistThe other reason for caution is that talk of a soft landing often occurs just before recession strikes (see chart). And that is in normal business cycles. Since the pandemic forecasters have performed poorly, underestimating growth and, until recently, inflation. That they now think a soft landing is arriving is good news. But don’t believe it until you see it. ■ More

Chinese consumer electronics company Xiaomi on Thursday detailed plans to enter China’s oversaturated electric vehicle market and compete with automaker giants Tesla and Porsche with a car model it says it spent more than 10 billion yuan ($1.4 billion) to develop.
The company’s car model, known as Xiaomi SU7, “is in trial production and it will hit the domestic market in a few months,” CEO Lei Jun said in a Tuesday post on the X social media platform, formerly known as Twitter. “The price has not been finalized yet.”
Pronounced “Sue Qi” in Mandarin, the Xiaomi SU7 beats Porsche’s Taycan and Tesla’s Model S on acceleration and other metrics, Xiaomi CEO Lei Jun said during a three-hour presentation on Thursday.

Chinese smartphone company Xiaomi revealed on Dec. 28, 2023, its forthcoming electric car, the SU7 sedan.
CNBC | Evelyn Cheng

BEIJING — Chinese consumer electronics company Xiaomi on Thursday detailed plans to enter China’s oversaturated electric vehicle market and compete with automaker giants Tesla and Porsche with a car model it says it spent more than 10 billion yuan ($1.4 billion) to develop.
The company’s car model, known as Xiaomi SU7, “is in trial production and it will hit the domestic market in a few months,” CEO Lei Jun said in a Tuesday post on the X social media platform, formerly known as Twitter. “The price has not been finalized yet.”

Pronounced “Sue Qi” in Mandarin, the Xiaomi SU7 beats Porsche’s Taycan and Tesla’s Model S on acceleration and other metrics, Lei said during a three-hour presentation on Thursday.
He laid out bold ambitions to become an industry leader, including in autonomous driving and noted that the SU7 design team previously worked at BMW and Mercedes Benz.
Sales are due to begin in 2024, after more than three years of development— during which electric vehicles have taken off in China’s highly competitive market, and domestic automakers have begun to differentiate their products through ambitious offerings of car-compatible tech.
This is an area of potential advantage for Xiaomi, which is best known for its smartphones and home appliances and previously said it wants to create a “‘Human x Car x Home’ smart ecosystem.”
The SU7 is integrated with Xiaomi’s smartphones and internet-connected home appliances, Lei announced Thursday. He emphasized the company’s efforts to ensure data privacy among the devices and create a car that surpasses U.S. safety standards for rear-end collisions.

Lei said the vehicle will also be compatible with Apple’s iPhone, iPad, CarPlay and AirPlay. The U.S. giant has yet to release a car despite widespread speculation of such plans.

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Two Xiaomi SU7 models appeared on a list of tax-exempt new energy vehicles published by the Ministry of Industry and Information Technology on Tuesday.
The document described the cars as purely battery powered, with driving range of 628 kilometers (390 miles) to 800 kilometers. The ministry listed a subsidiary of state-owned BAIC Group as the manufacturer for the Xiaomi SU7.
While the car isn’t yet available, Xiaomi has started selling its flagship smartphone and smart watch in the “aqua blue” and “olive oil green” colors of the SU7 sedan.
A price for the SU7 has yet to be revealed, but Lei hinted the purchase would not be cheap and dismissed rumors of a 99,000 yuan or 140,000 yuan price tag.

Read more about China from CNBC Pro

The Xiaomi car tech event comes as several domestic EV players have recently revealed new electric vehicles.

Nio on Saturday debuted its 800,000 yuan ($113,090) ET9, set to begin deliveries in the first quarter of 2025.
Huawei’s Aito brand on Tuesday unveiled its M9 SUV — starting at 469,800 yuan and due to begin mass deliveries in late February 2024.
Zeekr, backed by Geely, on Wednesday announced its 007 sedan would start at 209,000 yuan with deliveries beginning on Jan. 1.

Xpeng, which Xiaomi backed in 2019, is set to launch its X9 vehicle on Jan. 1, 2024. Ahead of the Thursday event, Lei shared pictures on popular Chinese social media platform Weibo which showed buildings lit up with messages of Xiaomi saying it salutes BYD, Nio, Xpeng, Li Auto and Huawei.
Xiaomi shares closed 0.25% lower in Hong Kong trading on Thursday. The company’s Hong Kong-traded shares are up by more than 40% so far this year. The business claimed record sales of more than $3 billion across various e-commerce platforms during this year’s Singles Day shopping festival.
Xiaomi has said it expects to spend 20 billion yuan ($2.8 billion) on research on development this year, up by 25% from 2022 and more than double the amount spent in 2020. More

Companies often withhold federal taxes from a bonus check at a flat 22% rate.
As a result, anyone in a marginal income tax bracket below 22% would likely see a smaller sum than expected, experts said.
Bonuses are also generally subject to state and local taxes, and payroll taxes for Social Security and Medicare.
Taxpayers may get overpaid taxes back as a refund during tax season.

Jgi/tom Grill | Tetra Images | Getty Images

Does your year-end bonus look smaller than expected?
Tax withholding is a likely culprit, but Uncle Sam may pay some back when you file an annual tax return, experts said.

Bonuses are treated as taxable income, like wages in a typical paycheck.
However, unlike wages, the IRS treats them as “supplemental” income, which is generally subject to different tax withholding rules.

Why the tax may seem high

Most often, employers withhold tax from bonuses at a flat 22% federal rate, according to tax experts.
As such, bonus tax withholding “will look like a big number” for any taxpayer whose federal marginal income tax rate is less than 22%, said Jeremiah Barlow, head of wealth solutions at Mercer Advisors.
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Many taxpayers fall into that category. In 2023, that group includes single individuals with a taxable income up to $44,725, and married couples who file a joint return with income up to $89,450.
In 2020, 49% of individual tax returns — roughly 81 million — were in a marginal income tax bracket below 22%, according to IRS statistics. That figure includes taxpayers in the 10% and 12% tax brackets but excludes those in the 0% bracket.

Bonuses may have additional tax withheld

A bonus may be subject to other withholding, too, such as state and local income taxes.
Employers in California, for example, withhold supplemental wages at a 10.2% state rate — meaning residents’ bonuses would likely be withheld at a combined 32.2% state and federal rate, Barlow said.

In addition, bonuses are also typically subject to Social Security and Medicare payroll taxes, of 6.2% and 1.45%, respectively.
“Very quickly someone might find themselves where [roughly] 40% is withheld,” said Matthew Fleming, a certified financial planner and senior wealth advisor at Vanguard.
Employers must also withhold a flat 37% from any bonus amounts that exceed $1 million.

Companies also have a second withholding option: Instead of issuing a separate bonus check, they can lump a bonus in with your typical paycheck. Workers would pay tax at their usual income tax rates.

You may get some of that tax back

For those whose checks appear small, there’s a silver lining. “Luckily, this means you could be due for a [tax] refund,” which would be equal to the extra amount your employer withheld, wrote Fidelity Investments. You’d receive any refund owed to you when filing an annual tax return.
Of course, the opposite could also be true. Higher earners, such as those in the 24%, 32%, 35% or 37% federal income brackets, may wind up owing the IRS more money at tax time if their bonus was withheld at a flat 22%, Barlow said.
A large bonus — say, $200,000 — could easily push someone into the 32% or 35% bracket, he added.
“Don’t assume that bonus amount they took out was enough,” Barlow said.Don’t miss these stories from CNBC PRO: More

Financial markets will always produce surprises. After all, by the time a consensus has formed, people will have bought or sold accordingly. The move has already happened; the future has something else in store.Even accounting for this, investors have had an unusually difficult time in 2023. The year started with broad agreement that 2022’s soaring interest rates would cause recessions in much of the world. Not only was this baked into asset prices—it also turned out to be wrong.Yet it was not just economic assumptions that were overturned. Here are the other big market surprises of 2023.Rates went higher. And bond yields rose by even more…The year began with the Federal Reserve’s credibility in question. Rate-setting officials had spent nine months tightening monetary policy each time they met. Jerome Powell, their chairman, took every opportunity to make hawkish noises. The market was not buying it, however, expecting that the central bank would relent and start cutting within a matter of months, before it accidentally broke something.That “something” turned out to be a clutch of American regional banks, the first of which—Silicon Valley Bank—collapsed in March. By continuing to raise rates even amid the turmoil, the Fed at last convinced investors that it was serious. The market accepted officials’ projections for where their benchmark rate would finish the year, whereas longer-term yields on government bonds marched ever higher. Ten-year American Treasuries, which hit a low of 3.2% in April, breached 5% in October, their highest since 2007. “Higher for longer” became the market’s mantra. Huw Pill of the Bank of England compared the future path of rates to Cape Town’s flat-topped Table Mountain, contrasting it with the triangular Matterhorn.…until both reversed course harder than anyone expectedWithin weeks of Mr Pill’s comments, yields had begun a distinctly Matterhorn-like descent (see chart). Those on ten-year American, British and German government debt are now around a percentage point below their peaks—amounting to a party in the bond market, since prices rise as yields fall. The festive mood took hold as one data release after another spurred hopes that inflation was fading and central bankers might not need to be so hawkish after all.image: The EconomistOnce upon a time, this would have prompted a rebuttal from Mr Powell, anxious that falling borrowing costs might stimulate the economy and undo his inflation-fighting work. Instead, the Fed’s chairman spiked the partygoers’ punch. On December 13th he announced that officials were already discussing rate cuts, which he envisaged taking place “well before” inflation hit its target of 2%. Bond investors turned the music up a notch.Other markets shrugged off the interest-rate ructionsFew things matter more to the financial system than the “safe” yields available on government bonds and their implications for everyone else’s borrowing costs. So the wide swings in these yields throughout the year might have been expected to leave all sorts of asset classes looking wobbly. Instead, most showed remarkable resilience.Investors had worried that rising interest rates might leave indebted borrowers unable to meet obligations. Yet after two years of such increases, the annual default rate on the riskiest “high-yield” American bonds was just 3.8%—below its long-term average of 4.5% and nowhere near peaks reached during crisis years such as 2009 or 2020. Investors in such debt therefore had an excellent year, with Bank of America’s high-yield index returning 13%.The story in other supposedly rate-sensitive markets was similar. Global house prices began to climb again after only the briefest of blips. Gold rose by 12%. Even bitcoin—the poster-child of the cheap-money era—soared.America’s stockmarket got high on artificial intelligenceThe recovery of America’s stockmarket was less spectacular than that of bitcoin, but in some ways more surprising. Having fallen by 19% over the course of 2022, the S&P 500 share index has clawed back nearly all of its losses, returning to within touching distance of its all-time peak.Two aspects of this recovery have taken many investors aback. The first is that, despite their previous losses, American stocks started the year looking pricey and then became much pricier. Measured by the excess return expected from their earnings, over and above the “risk-free” yield on government bonds, they are now more expensive (and hence yield less) than at any time since the swelling of the dotcom bubble (see chart).image: The EconomistThe second aspect is that this exuberance—essentially an assumption that shares have grown less risky and earnings growth more assured—took place amid a mania for AI. America’s tech giants provided the lion’s share of the gains, with investors judging them best placed to benefit from the new technology. Profits to be made from novel and yet-to-be-commercialised inventions are inherently uncertain. Nevertheless, equity investors are going all in on them.IPO bankers are still at a loose endSadly, not everyone is feeling bullish. The market for initial public offerings remains moribund. Dealogic, a data firm, estimates that companies going public raised some $120bn globally in 2023. That is less than the $170bn raised in 2022 and a fraction of the amount raised in 2021, of more than $600bn. The high-profile firms that did go public—including Arm, a chip designer, and Instacart, a grocery-delivery group—failed to spark a broader revival.Confusion over where long-term interest rates will settle did not help. But in other respects the dearth of new listings is a puzzle. Volatility has fallen, economic headwinds have died down and equity investors are throwing caution to the wind. That private firms are cautious might mean they see reasons to worry which the rest of the market is missing. Or perhaps they are merely getting ready to join the party in 2024. After months of twiddling their thumbs, bankers will be hoping for the latter. ■ More

“The Chinese cloud services market remains conservative, relying heavily on government and state-owned enterprises to drive growth,” tech market analysis firm Canalys said in a report Wednesday.
Growth in China’s cloud market has slowed significantly over the last two years after a 45% surge in 2021, Canalys data showed.
Training AI models on the cloud, following a surge of interest in the potential of ChatGPT-like services, has been expected to drive the industry’s growth.

An AI sign is seen at the World Artificial Intelligence Conference in Shanghai on July 6, 2023.
Aly Song | Reuters

BEIJING — Excitement over artificial intelligence isn’t yet fueling a boom in cloud services spending in mainland China.
“The Chinese cloud services market remains conservative, relying heavily on government and state-owned enterprises to drive growth,” tech market analysis firm Canalys said in a report Wednesday.

Training AI models on the cloud, following a surge of interest in the potential of ChatGPT-like services, has been expected to drive the industry’s growth.
Alibaba’s cloud business, with the country’s largest market share at 39%, reported just 2% year-on-year revenue growth in the quarter ended Sept. 30. The tech giant in November also scrapped plans to publicly list its cloud operations.
Huawei, which isn’t publicly traded and is the second largest cloud player, didn’t separately state its cloud revenue for the third quarter, nor did Hong Kong-listed Tencent.
The three largest cloud players in China held the same market share in the third quarter as they did in the prior one, while the segment’s overall growth slowed to 10% in 2022 and is expected to be at 12% in 2023 — sharply lower than the 45% surge in 2021, the Canalys report showed.

Domestic spending on cloud services grew by 18% year-on-year in the third quarter to $9.2 billion, according to the report.

However, it slowed drastically to 5.7% from 13% in the second quarter, according to CNBC analysis of Canalys data.

The mainland Chinese cloud market accounted for 12% of the global cloud spend in the third quarter, Canalys said. Third-quarter global cloud spending rose 1.5% from the previous quarter, CNBC analysis found.

Read more about China from CNBC Pro

The research firm pointed out the industry has been investing “heavily” in AI and looking to monetize AI offerings via the development of “partner ecosystems.” That includes a network of developers, software companies and experts, the report said.
This, however, is yet to translate into meaningful growth for the cloud segment.
“The innate complexity of AI technology presents challenges in terms of adoption and deployment,” Canalys said, “yet simultaneously unlocks opportunities for a broader AI ecosystem.”
Alibaba, Huawei and Tencent have each released AI models and products this year, as have Baidu and other companies in China. More

China’s proposed gaming rules would hit smaller developers more than large ones, while also reducing overall online advertising revenue, according to UBS.
Tencent, NetEase and Bilibili shares plunged to their lowest in more than a year Friday after China’s National Press and Publication Administration published draft rules that would prohibit incentivizing daily sign-ins for games, among other revenue-generating practices.

Mobile games in China range from League of Legends-like Honor of Kings to
Source: Apple Inc.

BEIJING — China’s proposed gaming rules would hit smaller developers more than large ones, while also reducing overall online advertising revenue, according to UBS.
Tencent, NetEase and Bilibili shares plunged to their lowest in more than a year Friday after China’s National Press and Publication Administration published draft rules that would prohibit incentivizing daily sign-ins for games, among other revenue-generating practices.

The comment period is open until Jan. 24. Hong Kong markets are closed Monday and Tuesday for Christmas.
“Big game developers or big DAU [daily active user] social games should fare better: This is because they have other means to boost gamers engagement, reach out to users and have stronger R&D capabilities to attract and retain gamers,” Kenneth Fong, head of China internet research, UBS, said in a note.
“With a lower revenue for online games, the ad industry would be impacted too,” he said. UBS estimates online games account for about 20% of the online ad industry’s revenue.

Gaming accounts for the majority of NetEase’s revenue, and about one-fifth or less at Tencent and Bilibili, third-quarter releases show.
Many other companies develop and publish games in China, although Beijing has in recent years made clear it would like to restrict game play, especially among minors.

It’s “very common” for online games to encourage daily sign-in and offer rewards for the initial in-app purchase, UBS’s Fong said. He pointed out that incentivizing users to sign in every day boosts engagement and allows for collection of user statistics, which can help developers adjust games in real time.
However, Fong said it is hard to quantify the financial impact of the proposed regulation since it’s unclear whether it would apply only to new games or also existing ones.
The National Press and Publication Administration, which controls the publication of new games, said Monday that it approved more than 100 new domestic games, after saying Friday that it approved 40 imported games.
Generally, Fong expects new games to be affected more than old ones. “As the online game is a very creative industry,” he said, “we believe the game developers would likely design other means to attract and retain users.” More

Of the 400 U.S. national parks, 109 of them charge an entrance fee, which typically ranges from $20 to $35 per vehicle.
The National Park Service is offering free admission to those parks on six days in 2024.
It may still make sense to buy an annual pass, which grants unlimited access year-round, if you plan to visit multiple parks.

Grand Canyon National Park
Jacobs Stock Photography | Photodisc | Getty Images

The National Park Service is offering free admission to U.S. national parks on six days in 2024.
There are more than 400 national parks in the U.S. Most of them offer free entrance all the time.

However, 109 parks don’t — including some of the most popular, like Grand Canyon, Zion, Rocky Mountain, Acadia, Yosemite, Yellowstone, Joshua Tree and Glacier national parks.
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Their entrance fees typically range from $20 to $35 per vehicle. (Some may charge per person instead of per vehicle, and there may also be different fees for motorcycles.)
All parks that generally charge an entrance fee will waive them on the following days next year:

Jan. 15: Birthday of Martin Luther King Jr.
April 20: First day of National Park Week.
June 19: Juneteenth.
Aug. 4: Anniversary of the Great American Outdoors Act.
Sept. 28: National Public Lands Day
Nov. 11: Veterans Day

It may make sense to buy an annual pass

Grand Prismatic Spring, Yellowstone National Park.
Ignacio Palacios | Stone | Getty Images

Even if you’re planning to visit a park during one of the 2024 free entrance days, it may make financial sense to buy an annual pass ahead of your trip, depending on the itinerary, said Mary Cropper, travel advisor and senior U.S. specialist at Audley Travel.

The $80 annual pass grants unlimited entrance to national parks and other federal recreation areas. (Some groups can get reduced-price or even free annual passes.)

For example, a pass would likely be a better option if you plan to visit multiple parks in one trip — in which case you may end up paying the standard entrance fee for each park (outside of the free day), Cropper said.
“You want to do the math,” she said.

You may also need a separate reservation

Yosemite National Park.
Kenny Mccartney | Moment | Getty Images

There were nearly 312 million visits to national parks in 2022. While not a record — that title belongs to 2016, the year of the National Park Service centennial — visitation is up about 10% in the last decade.
Many parks broke visitor records in the pandemic era as Americans sought domestic outdoor trips due to health fears and closed international borders.
“National parks are just booming right now,” Cropper said. “I think we’ll be witnessing entrance levels climbing.”

Aside from a standard entrance pass, some parks may require a separate reservation to enter in 2024. Those online reservations generally carry a fee of $2 or more.
For example, Yosemite recently announced that visitors will need to buy an advance reservation for weekends from April 13 through June 30, and Aug. 17 through Oct. 27, including holidays. They will also need one every day from July 1 through Aug. 16.
Don’t miss these stories from CNBC PRO: More

James Gorman is gearing up to join Disney’s succession planning committee to help pick CEO Bob Iger’s successor.
“I have an enormous amount of experience having run succession here on Morgan Stanley’s board,” Gorman said Thursday.
Gorman is retiring as Morgan Stanley’s CEO. He will join Disney’s board in February.

Morgan Stanley CEO James Gorman said Thursday that he’s gearing up to join a succession planning committee at Disney, which will advise the board on choosing CEO Bob Iger’s successor.
Gorman is set to step down as Morgan Stanley CEO Jan. 1. He will join Disney’s board in February.

Disney announced last month that Gorman was joining the company’s board. The announcement also included the appointment of former Sky TV boss Jeremy Darroch, beginning in January.
The move was seen as a way to hold off a proxy fight by activist fund Trian and its chief, Nelson Peltz, although Trian voiced dissatisfaction with the appointments in a statement. Trian said it would push for Peltz and former Disney executive Jay Rasulo to join the board.
Gorman has won praise for how he managed the succession process at Morgan Stanley.
“Disney is forming a succession committee, which I’ll be joining,” Gorman told CNBC’s David Faber. “I don’t start as a director until February.” He added: “But I have an enormous amount of experience having run succession here on Morgan Stanley’s board.”
Gorman also noted that he’s dealt with activist investors before. “We have had a lot of battles in my life,” he said of the Disney proxy fight. “That doesn’t bother me one little bit.”

Disney said Gorman was referring to the succession committee the company announced in January. The company disclosed Gorman would join the panel in a securities filing last month.
Disney re-appointed Iger as CEO in November 2022, following the tumultuous tenure of his hand-picked successor Bob Chapek. Before he ended his previous reign as CEO, Iger renewed his contract multiple times. In July, the company extended Iger’s contract through 2026.
The company has faced a number headwinds in recent years, including box office flops and streaming losses. Earlier this year, Iger reorganized the company, laying off 7,000 employees while looking to cut $7.5 billion in costs.
Tune in: “CNBC Leaders: James Gorman” airs at 8 p.m. ET Friday on CNBC. More