Finance

At some point American economic growth will disappoint expectations. For now, though, it appears to have ended 2023 much as it passed the previous few years, with yet another expansion that defied forecasts. Recent data suggest that the economy grew at an annualised pace of 2.5% or so in the final three months of the year, more than twice the median expectation of analysts at the start of the quarter.Although such momentum is welcome, it complicates the outlook as the Federal Reserve contemplates when to start cutting interest rates. America’s strength is broad-based. Investment in manufacturing facilities has soared to record highs, propelled by the Biden administration’s subsidies for electric-vehicle and semiconductor production. Elevated mortgage rates have led to big falls in sales of existing houses, but property developers have responded to the dearth of single-family homes on the market by ramping up building. The government has remained a backstop to growth—albeit a worrying one from the standpoint of long-term fiscal sustainability—with its deficit running at about 7% of GDP, which is virtually unprecedented during peacetime without a recession.Most important of all, American consumers have remained indomitable, defying expectations of a retrenchment in personal spending. Two factors help explain their resilience. The stash of savings accumulated by households during the covid-19 pandemic, thanks to the government’s fiscal largesse, has continued to offer them a buffer. Economists at the Fed’s branch in San Francisco reckon that households had about $290bn of excess savings, relative to the expected baseline, as of November. Moreover, the tight labour market has led to robust wage growth, especially for lower-income workers, who, in turn, have a higher propensity to spend. As inflation has come under control their real wage gains look even more substantial.These various sources of strength contributed to America’s barnstorming third quarter in 2023, when it posted annualised growth of 4.9%. Some slowing was only natural after such a rapid expansion. As recently as early October analysts had pencilled in growth of just 0.7% in the final quarter of 2023. But the latest reading from a real-time model by the Atlanta Fed—which has proved to be a reliable guide for recent GDP figures—points instead to annualised growth of 2.5%. Although the reading will fluctuate as more data trickle in, the margin for error shrinks as the date of a gdp release nears; the next one is on January 25th. For 2023 as a whole growth is likely to be about 2.5%, impressive considering that most economists expected America to be flirting with recession.What makes the growth all the more striking is that it has come at the same time as inflation has receded. The Fed’s preferred measure of inflation—the personal consumption expenditure (PCE) price index—hit 2.6% in November compared with a year earlier, down from 7% in mid-2022. Even more encouragingly, core PCE prices, which strip out volatile food and energy costs, have risen by just 2.2% on an annualised basis over the past three months, in line with the Fed’s target of 2%. The disinflation has been propelled by declines in goods prices as supply chains have recovered from pandemic disruptions.This has given rise to a best-of-both-worlds scenario: resilient growth and fading inflation. Such a propitious combination might allow the Fed to cut rates in the coming months not because growth is weakening, but because it wants to avoid excessive monetary restraint. Jerome Powell, the Fed’s chairman, seemed to give voice to these hopes after the central bank’s meeting in mid-December, when he said that rate cuts “could just be a sign that the economy is normalising and doesn’t need the tight policy”. His words fuelled a rally in both stocks and bonds.Yet the strong growth points to a less pleasant scenario: that the fall in inflation is a false signal. Whereas goods prices have declined, those for many services continue to rise at a faster clip than their pre-pandemic trend. Housing prices actually rebounded in 2023, despite mortgage rates climbing to 8%, their highest in two decades. With mortgage rates falling back below 7% in December, the prospect of a bigger re-acceleration in the property market looms large. An easing in financial conditions as a result of rate cuts would support economic growth but would also feed into renewed price pressures.If inflation rebounds the Fed would have little choice but to keep interest rates elevated, perhaps reviving the fears of a recession that have all but vanished. These risks help explain why John Williams, president of the New York Fed, poured cold water on the most feverish speculation about imminent rate cuts in the wake of Mr Powell’s comments last month. He said it was “just premature to be even thinking about that”. It is probably also premature to celebrate America’s escape from the past few years of brutal inflation with barely a bruise to its economy. ■ More

U.S. Federal Reserve officials expect to cut interest rates three times in 2024, according to its latest summary of economic projections.
It would be the first cut since the Fed slashed rates to rock bottom in the early days of the Covid-19 pandemic.
Bonds and REITs are poised to benefit. Investors can also lock in rates on CDs now.

Georgijevic | E+ | Getty Images

Stocks’ runup likely won’t persist

Falling interest rates are generally a boon for the stock market, advisors said. Among the reasons: Businesses can borrow money more cheaply and are more likely to make big investments in their companies as a result.

However, 2024 is unlikely to see a repeat of stocks’ stellar performance from last year, advisors said.
The S&P 500 U.S. stock index rose 24% in 2023 following a year-end rally. That surge was partly forward-looking, reflecting investors’ expectations for lower interest rates in 2024.
“The stock market is the great anticipation machine,” said Charlie Fitzgerald III, a certified financial planner based in Orlando, Florida.

“If anyone was trying to time the market, they may have missed it already,” added Fitzgerald, a founding member of Moisand Fitzgerald Tamayo. “Because it’s what happened in the fourth quarter.”
Of course, that doesn’t mean all market growth is in the rearview mirror. But don’t make the mistake of buying stocks with the expectation of them continuing to rise, he said. That tendency is called recency bias.
That said, growth stocks like those in the technology sector are more likely to benefit from lower interest rates than value stocks, said Ted Jenkin, CFP, the founder of oXYGen Financial in Atlanta and a member of CNBC’s Advisor Council.

Now is the time to lock in CD rates

Cash and cash-like investments — such as high-yield savings accounts, money market funds and certificates of deposit — were among the big beneficiaries of rising interest rates. Rates on cash jumped to their highest level in years.
However, those rates are likely to fall once the Fed starts cutting borrowing costs.
“If you can lock in CD rates [at current levels], this is probably a good time to do it,” Jenkin said. “There are still a lot of places that offer 5%.”
Savers aren’t getting much more interest on longer-term CDs, like those with a five-year term, versus a shorter-term, one-year CD, for example — so it may make more sense to opt for one with a shorter term, Jenkin said.

Bonds are poised to pop

Bonds got clobbered by the Fed’s interest-rate-hiking cycle.
That’s because bond prices move opposite to interest rates. It’s like a seesaw: When interest rates rise, bond prices fall.
The share prices of bond mutual funds and exchange-traded funds sank in 2022, the worst-ever year for U.S. bonds.

The stock market is the great anticipation machine.

Charlie Fitzgerald III
certified financial planner

Now, if interest rates fall, bond funds are poised for a rebound, advisors said.
An environment of gradually falling interest rates “is an easy place to make money in the bond market without a whole bunch of risk,” Fitzgerald said.
Those with a strong conviction that interest rates will fall may consider buying funds with a longer maturity, which would generally benefit more from declining rates, Jenkin said. However, they also carry more risk, he said.  

REITs are another likely beneficiary of rate cuts

Real estate investment trusts are also poised to do well amid falling interest rates, Jenkin said.
“This is one of the top moves I’d be making with my money” if expecting rates to fall, he added.
The REIT sector “depends highly on the debt market to carry out business activities,” and such companies therefore “benefit from lower borrowing costs,” according to Zacks Equity Research.
For investors who buy, it would perhaps make more sense to do it in a retirement account like an individual retirement account or 401(k) plan, so the dividends aren’t taxable until later, Jenkin said.
As with any of these recommendations, it’s important to make investment decisions within the construct of a diversified portfolio, Fitzgerald said.
Hold an adequate amount of stocks in your portfolio relative to your age and time horizon, be disciplined and don’t freak out if and when the market goes down, he added. More

Richmond Federal Reserve President Thomas Barkin on Wednesday expressed confidence that the economy is on its way to a soft landing.
He compared the Fed’s job to a pilot bringing an airplane in for a landing, and noted four risks ahead.
Despite noting progress on inflation, Barkin said, “the potential for additional rate hikes remains on the table.”

Federal Reserve Bank of Richmond President Thomas Barkin poses during a break at a Dallas Fed conference on technology in Dallas, Texas, May 23, 2019.
Ann Saphir | Reuters

Richmond Federal Reserve President Thomas Barkin on Wednesday expressed confidence that the economy is on its way to a soft landing, but obstacles remain that will require caution from him and his fellow policymakers.
While noting progress made on inflation as economic growth has stayed afloat, the central bank official said interest rate hikes remain “on the table” even though Fed officials at their most recent meeting in December indicated that this round of policy tightening is probably over.

“We’re making real progress,” Barkin, a voting member this year on the rate-setting Federal Open Market Committee, said in prepared remarks for a speech in Raleigh, North Carolina. “Now, everyone is talking about the potential for a soft landing, where inflation completes its journey back to normal levels while the economy stays healthy. And you can see the case for that.”
Inflation by the Fed’s preferred measure of personal consumption expenditures prices rose 2.6% in November from a year ago, and was up 3.2% excluding food and energy. That’s well below its mid-2022 peak but still above the Fed’s 2% target. However, Barkin noted that PCE inflation on a six-month basis is at 1.9%
He compared the Fed’s job to a pilot bringing an airplane in for a landing, and noted four risks ahead: The economy could “run out of fuel” and growth could reverse; “unexpected turbulence” such as geopolitical events or the banking shock that hit in March 2023; the possibility of “approaching the wrong airport,” where inflation holds above the Fed’s 2% target; and a “delayed landing,” where demand holds unexpectedly high, boosting inflation.
“The airport is on the horizon. But landing a plane isn’t easy, especially when the outlook is foggy, and headwinds and tailwinds can affect your course,” Barkin said. “It’s easy to oversteer and do too much or understeer and do too little.”
The speech comes three weeks after the FOMC again decided not to raise interest rates, holding for the third consecutive time.

Along with that decision, committee members penciled in three quarter-percentage point rate cuts in 2024. That’s a less aggressive path than market pricing indicates, but still represents an important policy pivot from a Fed that had hiked 11 times for a total of 5.25 percentage points since March 2022. Market pricing currently indicates six cuts this year, according to the CME Group’s FedWatch gauge of fed funds futures activity.
Barkin didn’t indicate where his “dot” was on the Fed’s closely followed dot-plot matrix of individual members’ rate hikes. However, he noted risks that the central bank’s job bringing down inflation may not be over.
“Longer-term rates have dropped recently, which could stimulate demand in interest-sensitive sectors like housing,” he said. “While you might think this would be a first-class problem, strong demand isn’t the solution to above-target inflation. That’s why the potential for additional rate hikes remains on the table.”
Barkin’s remarks come the same day the FOMC will release minutes from the Dec. 12-13 meeting that should provide more insight into thinking from policymakers on where rates are headed.
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By 2050 there will be a new crop of economic powers—if things go to plan. Narendra Modi, India’s prime minister, wants his country’s GDP per person to surpass the World Bank’s high-income threshold three years before then. Indonesia’s leaders reckon that they have until the mid-century mark (when an ageing population will start to drag on growth) to catch up with rich countries. 2050 is also the scheduled finale for Muhammad Bin Salman’s reforms. Saudi Arabia’s crown prince wants to transform his country from an oil producer into a diversified economy. Other smaller countries, including Chile, Ethiopia and Malaysia, have schemes of their own.These vary widely, but all have something in common: breathtaking ambition. India’s officials think that GDP growth of 8% a year will be required to meet Mr Modi’s goal—1.5 percentage points more than the country has managed on average over the past three decades. Indonesia will need growth of 7% a year, up from an average of 4.6% over the same period. Saudi Arabia’s non-oil economy will have to grow by 9% a year, up from an average of 2.8%. Although 2023 was a good year for all three, none experienced growth at this sort of pace. Very few countries have maintained such growth for five years, let alone for thirty.Nor is there an obvious recipe for runaway growth. To boost prosperity, economists typically prescribe liberalising reforms of the sort that have been advanced by the IMF and the World Bank since the 1980s under the label of the “Washington Consensus”. Among the most widely adopted are sober fiscal policies and steady exchange rates. Today technocrats urge looser competition rules and the privatisation of state-owned firms. Yet these proposals are ultimately concerned with removing barriers to growth, rather than supercharging it. Indeed, William Easterly of New York University has calculated that, even among the 52 countries which had policies most consistent with the Washington Consensus, GDP growth only averaged 2% a year from 1980 to 1998. Mr Modi and Prince Muhammad are unwilling to wait—they want to develop, fast.The aim is to achieve the sort of meteoric growth that East Asian countries managed in the 1970s and 1980s. As globalisation spread, they made the most of large, cheap and low-skilled workforces, cornering markets in cars (Japan), electronics (South Korea) and pharmaceuticals (Singapore). Industries were built behind protectionist walls, which restricted imports, then thrived when trade with the rest of the world was encouraged. Foreign firms later brought the know-how and capital required to churn out more complex and profitable goods, increasing productivity.Little surprise, then, that leaders across the developing world remain enthusiastic about manufacturing. In 2015 Mr Modi announced plans to increase industry’s share of Indian GDP to 25%, from 16%. “Sell anywhere, but make in India,” he urged business leaders. Cambodia hopes to double the exports of its factories, excluding clothing, by 2025. Kenya wants to see its manufacturing sector grow by 15% a year.There is a snag, however. Industrialisation is even harder to induce than it was 40 or 50 years ago. Technological advances mean that fewer workers than ever are needed to produce, say, a pair of socks. In India five times fewer workers were required to operate a factory in 2007 than in 1980. Across the world, industry now runs on skill and capital, which rich countries have in abundance, and less on labour, meaning that a large, cheap workforce no longer offers much of a route to economic development. Mr Modi and others therefore have a new game plan: they want to leap ahead to cutting-edge manufacturing. Why bother stitching socks when you can etch semiconductors?This “extraordinary obsession with making stuff right on the technological frontier”, as a former adviser to the Indian government puts it, sometimes leads to old-fashioned protectionism. Indian firms may be welcome to sell anywhere, but Mr Modi wants Indians to buy Indian. Import bans have been announced on everything from laptops to weapons.But not all the protectionism is old-fashioned. Since the last outbreak in India, in the 1970s, subsidies and tax breaks have mostly replaced import bans and licensing. Back then every investment over a certain threshold had to be cleared by a civil servant. Now senior officials are under orders from Mr Modi to drum up $100bn-worth of investment a year, and the prime minister has declared luring chipmakers to be among his main economic goals. “Production-linked incentives” give tax breaks for each computer or missile made in India, as well as for other high-tech products. In 2023 such subsidies cost $45bn, or 1.2% of GDP, up from $8bn or so when the scheme was launched in 2020. Similarly, Malaysia is offering handouts to firms that establish cloud-computing operations, and helps with the cost of factories set up in the country. Kenya is building five tax-free industrial parks, which will be ready in 2030, and has plans for another 20.In some places, there has been early success. Cambodia’s manufacturing sector produced three percentage points more of the country’s GDP last year than it did five years ago. Firms that are looking to diversify from China have been lured by low costs, subsidies for high-tech manufacturing and state investment. Elsewhere, though, things are proving harder. In India manufacturing has stayed steady as a share of GDP—Mr Modi is not going to hit his 25% target by next year. Big names like Apple and Tesla have put their brands on a factory or two, but show little desire to make the sort of investments they once lavished on China, which offers superior infrastructure and a better educated workforce.The danger is that, in seeking to attract high-tech manufacturing, countries end up repeating past disasters. From 1960 to 1991 manufacturing’s share of Indian GDP doubled. But when protective barriers were removed in the 1990s, nothing was cheap enough to export to the rest of the world. The risk is especially great this time around since Mr Modi sees manufacturing as being synonymous with “self-reliance”—or India’s ability to produce everything that it needs, especially the tech that goes into weapons. Along with Indonesia and Turkey, India is one of a group of countries that view getting rich as route to a stronger geopolitical position, increasing the chance of misdirected investment.These drawbacks to both basic manufacturing and attempts to leap ahead are helping convince some countries to try another approach: attracting industries that use their natural resources, especially the metals and minerals powering the green transition. Governments in Latin America are keen. So are the Democratic Republic of Congo and Zimbabwe. But it is Indonesia that is leading the way, and doing so with striking heavy-handedness. Since 2020 the country has banned exports of bauxite and nickel, of which it produces 7% and 22% of global supply. Officials hope that by keeping a tight grip they can get refiners to move to the country. They then want to repeat the trick, persuading each stage of the supply chain to follow, until Indonesian workers are making everything from battery components to wind turbines.Officials are also offering carrots, in the form of both cash and facilities. Indonesia is in the midst of an infrastructure boom: spending between 2020 to 2024 ought to reach $400bn, over 50% more a year than in 2014. This includes funding for at least 27 multibillion-dollar industrial parks, including the Kalimantan Park, constructed on 13,000 hectares of former Bornean rainforest at a cost of $129bn. Other countries are also offering sweeteners. Firms that want to install solar panels in Brazil will receive subsidies to also build them there. Bolivia nationalised its lithium industry, but its new state-owned conglomerates will be permitted to enter into joint ventures with Chinese companies.This approach—of trying to scale the energy supply chain—has little precedent. The world’s oiliest countries mostly ship crude abroad. Indeed, more than 40% of global refining capacity is in America, China, India and Japan. Saudi Arabia refines less than a quarter of what it produces; Saudi Aramco, the state oil giant, refines in northern China. Experiments with export bans have mostly been in simpler commodities, such as timber in Ghana and tea in Tanzania. By contrast, obtaining nickel pure enough to be used in electric vehicles from Indonesia’s supply is ferociously complex, notes Matt Geiger of MJG Capital, a hedge fund. Doing so requires three different types of factory, and the nickel must then pass through several more before it enters a car.In the blackFossil fuels have made parts of the Gulf rich, but almost every industry in the world constantly guzzles oil. There is no guarantee that the bonanza from green metals will be as large. Batteries only need replacing every few years. Officials at the International Energy Agency, a global body, reckon that pay-offs from green commodities will peak in the next few years, after which they will taper off. Moreover, technological development could suddenly reduce appetite for certain metals (say, if another type of battery chemistry takes off). Meanwhile, fossil-fuel beneficiaries are trying another strategy altogether: to reinvent the entrepot. The Gulf wants to be where the world does business, welcoming trade from all corners of the globe and providing shelter from geopolitical tensions, particularly between America and China. By 2050 the world should have reached net-zero emissions. Although the Gulf is rich, its economies are still developing. Local workforces are less skilled than those in Malaysia, yet receive wages comparable to those in Spain. This makes foreign workers essential. In Saudi Arabia they account for three-quarters of the total labour force.The United Arab Emirates was one of the first countries in the region to diversify. It has focused on industries, such as shipping and tourism, that may help to facilitate other business, as well as on high-tech industries, such as artificial intelligence (AI) and chemicals. Abu Dhabi is already home to outposts of the Louvre and New York University, and has plans to make money from space travel for tourists. Qatar is building Education City, a campus that will cost $6.5bn and sprawl across 1,500 hectares, working a bit like an industrial park for universities, with the outposts of ten, including Northwestern and University College London.Others in the Gulf now want to emulate the approach. Saudi Arabia hopes to see flows of foreign investment increase to 5.7% of GDP in 2030, up from 0.7% in 2022, and is spending fabulous amounts of money in pursuit of this ambition. The Public Investment Fund has disbursed $1.3trn in the country over the past decade—more than is forecast to be unleashed by the Inflation Reduction Act, President Joe Biden’s industrial policy in America. The fund is shelling out on everything from football teams and petrochemical plants to entirely new cities. Industrial policy has never been conducted on such a scale. Dani Rodrik of Harvard and Nathaniel Lane of the University of Oxford reckon that China spent 1.5% of GDP on its own efforts in 2019. Last year Saudi Arabia disbursed sums equivalent to 20% of GDP.The problem with throwing around so much money is that it becomes difficult to see what is working and what is not. Manufacturers in Oman, making products from aluminium to ammonia, can get a factory rent-free at one of the country’s new industrial parks, buy materials with generous grants and pay their workers’ wages by borrowing cheaply from shareholders, which usually include the government. They can even draw on export subsidies to sell abroad more cheaply. How is it possible to tell which firms will outlast all this cash, and which ones would collapse without it?One thing is already painfully clear. The private sector is yet to take off in the Gulf. Almost 80% of all non-oil economic growth in the last five years in Saudi Arabia has come from government spending. Although an impressive 35% of Saudi Arabian women are now in the labour force, up from 20% in 2018, overall workforce-participation rates across the rest of the Gulf remain low. Researchers at Harvard University have found that legislation introduced in 2011, which stipulated that Saudis should make up a set portion of a firm’s headcount—for instance, 6% of all workers in green tech and 20% in insurance—decreased productivity and did nothing to move the needle on private employment.The right horse?A few countries will make it to high-income status. Perhaps the UAE’s spending on AI will pay off. Perhaps new tech will make the world more dependent on nickel, to Indonesia’s advantage. India’s population is too young for growth to stagnate entirely. But the three strategies employed by countries looking to get rich—leaping to high-tech manufacturing, exploiting the green transition and reinventing the entrepot—all represent gambles, and expensive ones at that. Even at this early stage, a few lessons can be drawn.The first is that the state is now much more active in economic development than at any point in recent decades. Somehow an economy must evolve from agrarian poverty to diversified industries that can compete with rivals in countries which have been rich for centuries. To do so requires infrastructure, research and state expertise. It may also require lending at below market rates. This means that a certain amount of state involvement is inevitable, and that policymakers will have to pick some winners. Even so, governments are now intervening much more than they did previously. Many have lost patience with the Washington Consensus. The benefits of its most straightforward reforms, such as independent central banks and ministries stuffed with professional economists, have already been reaped; the institutions that once enforced the doctrine (namely, the IMF and World Bank) are shadows of their former selves.image: The EconomistToday policymakers in the developing world take cues from China and South Korea. Few recall their own country’s interventionist follies. In the 1960s and 1970s it was not just those in East Asia that were enthusiastically experimenting with industrial policy; many in Africa were as well. For the best part of a decade, the two regions grew at a similar pace. Yet from the mid-1970s it became apparent that policymakers in Africa had made the wrong bets (see chart). A debt crisis kicked off a decade known as the “African tragedy”, in which the continent’s economies shrank by 0.6% a year on average. Later, in the 2000s, Saudi officials unsuccessfully spent big to foster a petrochemical industry, forgetting that shipping oil abroad was cheaper than paying people to work at home.The second is that the stakes are high. Most countries have sunk enormous sums into their chosen path. For the smaller ones, such as Cambodia or Kenya, the result could be a financial crisis if things go wrong. In Ethiopia, this has already happened, with debt default accompanying civil war. Even bigger countries, such as India and Indonesia, will not be able to afford a second stab at development. The bill from their current efforts, should they fail, and the cost of ageing populations will leave them short of fiscal space. Wealthier countries are constrained, too, albeit by another resource: time. Saudi Arabia needs to develop before demand for its oil drops off, or else there will be few ways to sustain its citizens.The third is that the way countries grow is changing. According to work by Mr Rodrik, manufacturing has been the only area where poor countries improve their productivity at a faster rate than rich countries, and so catch up. Modern industry may not offer the same benefit. Rather than spending time trying to make factory processes more efficient, workers in countries trying to get rich increasingly mine green metals (working in an industry with notoriously low productivity), serve tourists (another low-productivity sector) and assemble electronics (rather than making more complex components). All this means that the race to get rich in the 21st century will be more gruelling than the one in the 20th century. ■ More

BYD said Monday it produced more than 3 million new energy vehicles in 2023, putting the Chinese electric car giant on track to surpass Tesla’s production for a second straight year.
The U.S. electric car company had yet to release full-year figures as of Tuesday.
While surpassing the 3 million mark, BYD’s annual sales slightly missed CLSA’s expectations for 3.05 million vehicles.

BYD launched the BYD Seal in Europe at the IAA auto show in Munich, Germany. The electric sedan has a starting price of 44,900 euros ($48,479).
Arjun Kharpal | CNBC

BEIJING — BYD said Monday it produced more than 3 million new energy vehicles in 2023, putting the Chinese electric car giant on track to surpass Tesla’s production for a second straight year.
The U.S. electric car company had yet to release full-year figures as of Tuesday in Asia. Tesla said it produced 1.35 million cars during the first three quarters of 2023.

In 2022, Tesla manufactured 1.37 million vehicles, fewer than BYD’s 1.88 million. New energy vehicles include battery-powered and hybrid models.
Most of BYD’s cars sell in a lower price range than Tesla’s, and come in hybrid versions. Elon Musk’s automaker only sells purely battery-powered cars. China accounted for about one-fifth of Tesla’s sales in the quarter ended Sept. 30.
BYD shares fell by more than 2% in Hong Kong trading Tuesday morning.

Stock chart icon

Competition heats up

Companies wanting a slice of China’s fast-growing electric car market have flooded the space with new models. Chinese smartphone maker Xiaomi last week detailed its plans to launch an EV to compete with Porsche and Tesla.
Li Auto, whose monthly deliveries have surged to record highs, is set to launch its first purely battery-powered vehicle, MEGA, on March 1 and begin deliveries later that month, according to an announcement Sunday. That’s slightly later than initial projections for late February deliveries.
The startup has so far seen success with cars that come with a fuel tank to charge the battery and extend driving range. Li Auto said it delivered more than 50,000 cars in December for a total of 376,030 in 2023, a 182% year on year increase.

Xpeng on Monday launched its X9 MPV, with deliveries starting immediately.
The Chinese EV maker said its overall deliveries of electric cars rose 17% year on year to 141,601 in 2023, with a record 20,115 vehicles delivered in December.
Huawei’s new energy vehicle brand, Aito, said Monday that orders for its M9 SUV have surpassed 30,000 in the seven days since its launch. M9 mass deliveries are set to begin in late February.
Aito said it delivered 94,380 cars in 2023, including 24,468 in December alone. For 2022, Aito said it delivered more than 75,000 cars since beginning deliveries in March of that year.
Zeekr, backed by Geely, said it started Monday to deliver its latest model, the 007 electric sedan. Zeekr said its overall deliveries rose by 65% in 2023 to 118,685.
That total figure is still lower than Nio’s, which said it delivered 160,038 cars in 2023, up by nearly 31% year on year. The company delivered just over 18,000 cars in December.
Among the many other electric car brands in China, Nezha reported deliveries of 127,496 cars in 2023.
Aion, a spinoff of state-owned GAC Motor, said it sold more than 480,000 cars in 2023, up 77% year on year.

Overseas expansion

Several Chinese electric car players including Nio and BYD are also pushing into markets outside China, especially Europe.
BYD’s overseas sales in 2023 exceeded 242,000 new energy passenger vehicles, according to CNBC calculations of public data. The company did not disclose comparable 2022 figures.
The Chinese EV giant announced plans in December to build a new production center in Hungary. The company said it currently sells five models in Europe and plans to launch three more for the region in the next 12 months.

“While the China market is one of the pioneers entering into the era of EVs, we believe moving overseas (building factories in the overseas market rather than just shipping vehicles manufactured in China) is the only way for China’s leading carmakers to achieve success in the global market in the long run,” Nomura China autos analyst Joel Ying and a team said in a Jan. 2 note.
“Given the company already has a bus factory in Hungary, we believe the decision to build the first EU PV factory in Hungary will help BYD to minimize the potential risks in the overseas market,” the report said.
BYD said it sold 36,095 new energy passenger vehicles overseas in December, more than triple the year-ago figure.
— CNBC’s Michael Bloom contributed to this report. More

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