Policy Backgrounders

The Weekly Round-Up: Developments on the Economy (December 9, 2022)

December 09, 2022

CED & ESF ECONOMIC & POLICY BRIEF

The Weekly Round-Up:

Developments on the Economy

December 9, 2022

The US economy continues to deliver mixed signals. While The Conference Board™ Consumer Confidence Index® signals recession in short-order, incoming data continue to show resilience in the final quarter of 2022. Notably, the labor market is showing general strength with payroll additions and few layoffs as indicated by initial jobless claims. However, on closer inspection, there are signs of weakness, largely in places that are highly sensitive to interest rate hikes and shifting consumer behaviors. The housing market is rapidly decelerating, evident in construction and home sales. Home price appreciation is also slowing. This is contributing to fewer purchases of durable goods by consumers, who are shifting more towards services spending and away from financed products. Indeed, factory purchasing managers’ indexes are flagging while services indexes are improving. Still The Conference Board™ Leading Economic Indicators Index® suggests recession is likely around the turn of the year. Cracks are forming given four consecutive months of decline in temporary help services employment, which is a leading indicator of future labor market performance, and households are increasing their use of credit cards to finance purchases, likely as elevated inflation erodes purchasing power. We still expect recession ahead as the Fed continues to raise interest rates in rapid order, with a likely 50 basis point hike at the December 14 meeting, and further increases to 4.75-5.00 by March 2023.

1. JOB GROWTH REMAINS STRONG

2. US TRADE DEFICIT WIDENS TO $78.2 BILLION

3. FACTORY ORDERS ROSE IN OCTOBER

4. INITIAL UNEMPLOYMENT CLAIMS RISE SLIGHTLY

5. CONSUMER CREDIT USE CONTINUES TO RISE

6. HUAWEI, ZTE EQUIPMENT BANNED; $1.5 BILLION INNOVATION FUND FOR WIRELESS EQUIPMENT

7. TSMC ANNOUNCES SECOND FAB IN ARIZONA

8. DEMOCRATS EXPAND SENATE MAJORITY

9. SENATOR SINEMA TO REGISTER AS INDEPENDENT

10. FTC SUES TO BLOCK MICROSOFT ACQUISTION OF ACTIVISION BLIZZARD

11. FRESH START STUDENT LOAN INITIATIVE

12. MONKEYPOX UPDATES

1. JOB GROWTH REMAINS STRONG

On Friday, the Bureau of Labor Statistics released the Employment Situation, a monthly report containing two surveys on the labor market, showing another strong month of job growth, with 263,000 jobs added in November, after an increase of 284,000 jobs (an upward revision) in October. The unemployment rate remained at 3.7 percent. The labor force participation rate for people aged 16 and older ticked down to 62.1 percent, from 62.2 percent in October. Leisure and hospitality reported another strong month of employment gains, with 88,000 jobs added in November. Other noteworthy gains were reported in health care and social assistance (68,100), construction (20,000), and manufacturing (14,000). On the other hand, after applying seasonal adjustment, the report showed the third consecutive month of job losses in the retail sector and transportation and warehousing. Participation for people aged 25 to 54 is at 82.4 percent in November 2022—still below its prepandemic rate of 83 percent in February 2020. The gap in participation rates for people aged 55 and over is even larger, 38.6 percent in November 2022 compared to 40.3 percent in February 2020. An analysis of the report by The Conference Board’s Economy, Strategy, and Finance Center may be found here.

2.  US TRADE DEFICIT WIDENS TO $78.2 BILLION  

The US trade deficit in goods and services increased to $78.2 billion in October, up $4.0 billion from September’s revised figure of $74.1 billion. October exports were $256.6 billion, $1.9 billion less than September. October imports were $334.8 billion, $2.2 billion more than September. In goods, the trade deficit widened by $6.1 billion to $99.6 billion, with declining exports (-$3.7 billion) and increasing imports (+$2.4 billion). Major categories of decline in exports included energy and pharmaceuticals. Though crude oil exports increased $1.6 billion, natural gas decreased $1.4 billion and other petroleum products $1.3 billion, while pharmaceutical products decreased $2.2 billion. Exports of foods, feeds, and beverages increased $0.4 billion, led by soybeans ($1.6 billion). Goods imports increased, led by passenger cars ($0.7 billion) and pharmaceuticals ($2.7 billion). The trade surplus in services increased by $2.1 billion to $21.4 billion. This was driven by increased exports in travel ($0.8 billion) and transport ($0.4 billion). Imports of services declined, led by a $0.5 billion decrease in transport imports.

3. FACTORY ORDERS ROSE IN OCTOBER

New orders for manufactured goods in October rose 1.0 percent to $556.6 billion, according to Census Bureau data. This followed a 0.3 percent September increase and marked the twelfth rise in the last thirteen months. Durable goods and nondurable goods rose 1.1 percent and 1.0 percent, respectively. Orders for machinery rose 1.5 percent, and computers and electronic products rose 0.5 percent. However, primary metals orders grew just 0.1 percent, following a -2.4 percent decline in September. More forward-looking surveys from both the Institute for Supply Management (ISM) and S&P Global  which cover November suggest that new orders may decline as soon as the next data release.

4. INITIAL UNEMPLOYMENT CLAIMS RISE SLIGHTLY

The Department of Labor reported Thursday that initial claims for unemployment insurance, a weekly indicator of labor market health, were 230,000 for the week ending December 3, an increase of 4,000 from the previous week’s revised level, and holding at the 4-week moving average of 230,000. This level of claims is moderate by historical standards and below the July highs of 261,000. The Conference Board’s latest economic forecast shows the unemployment rate rising to 4.5 percent, well above its current level of 3.7 percent, by the third quarter of 2023.

5. CONSUMER CREDIT USE CONTINUES TO RISE

According to preliminary data published Wednesday by the Federal Reserve, consumer credit increased in October at an annualized rate of 6.9 percent, reaching a new high of $4.73 trillion. Nonrevolving credit grew at a 5.8 percent annualized rate to $3.56 trillion, while revolving credit grew at a 10.4 percent annualized rate to $1.17 trillion. Both categories have reached new highs. Growth in revolving credit (such as credit cards) is a sharp rebound from the pandemic; revolving credit use declined 11.2 percent in 2020. As consumers return to their previous patterns of consumption, or even exceed them, they have drawn more on revolving credit. The Fed’s interest rate increases have raised interest rates associated with credit card plans; according to Fed data, these have risen from an average of 14.60 percent stated annual percentage rate in 2021 to 16.27 percent in August 2022.

6. HUAWEI, ZTE EQUIPMENT BANNED; $1.5 BILLION INNOVATION FUND FOR WIRELESS EQUIPMENT

Axios reported that The Federal Government plans to use $1.5 billion allocated in the CHIPS and Science Act to diversify the cellular equipment supply chain. No major cellular equipment maker is located in the US; National Telecommunications and Information Administration (NTIA) director Alan Davidson said that “[t]he highly consolidated global market for wireless equipment creates serious risks for both consumers and U.S. companies [.]” The higher priced segment of the market includes Finland’s Nokia, Sweden’s Ericsson, and South Korea’s Samsung, but cheaper alternatives are dominated by China’s Huawei and ZTE. The FCC banned most new sales of Huawei and ZTE equipment last Friday citing an “unacceptable risk” to US national security. One likely beneficiary of the new funding is the Open Radio Access Network (ORAN), which uses currently available communications technology to replace proprietary equipment and may help carriers upgrade their networks more quickly in the absence of access to Huawei and ZTE equipment. Comments on the use of the funds are due January 23. Another component of this effort, the $1.9 billion Secure and Trusted Communications Networks Reimbursement Program reimburses telecommunications firms that replace Huawei or ZTE equipment.

7. TSMC ANNOUNCES SECOND FAB IN ARIZONA

Taiwan Semiconductor Manufacturing Company (TSMC)  announced on Tuesday that it would add a second semiconductor factory in Arizona in addition to its already-planned $12 billion investment. This facility would manufacture 3-nanometer transistors, some of the smallest and most advanced available, and increase TSMC’s total investment in Arizona to $40 billion. The President, Commerce Secretary Gina Raimondo, and Apple CEO Tim Cook all attended the announcement. Cook confirmed that Apple intends to use the chips to be manufactured at the Arizona facility.

Earlier this year, the CHIPS and Science Act of 2022 offered $52.7 billion in incentives for domestic semiconductor manufacturing. incentives for building semiconductor fabs in the US. While the US remains a leader in the research and development of semiconductors, US physical production capacity has fallen, as many US firms had moved to a so-called “fabless” model, which outsources physical production to Asia. Production has become deeply concentrated in Asia, specifically in Taiwan and South Korea, with the US accounting for just 11 percent of capacity in 2019. In a public comment on the implementation of the CHIPS Act, TSMC noted that it is “primarily relying on its own capital supplemented by direct U.S. incentive funds” for the Phoenix facility.

8. DEMOCRATS EXPAND SENATE MAJORITY

On Tuesday, incumbent Senator Rev. Raphael Warnock (D-GA) beat challenger Herschel Walker in the Georgia Senate runoff. While Democrats already controlled the Senate for the 118^th Congress because Vice President Harris would break ties, the new 51-49 Democratic control of the Senate will enable Democrats to have majorities on Senate committees, hire additional staff, and issue subpoenas in oversight investigations. Early voting in the runoff was very strong, with nearly 1,900,000 people voting early but declined about 25 percent from the general election because of the shorter time between that election and the runoff and a limited early voting period from November 28 to December 2, a change instituted this year after Georgia’s new election law was enacted.

9. SENATOR SINEMA TO REGISTER AS INDEPENDENT

Senator Krysten Sinema has announced that she is switching her voter registration in Arizona to Independent, leaving the Democratic Party. She added that "I've never fit neatly into any party box. I've never really tried. I don't want to. Removing myself from the partisan structure -- not only is it true to who I am and how I operate, I also think it'll provide a place of belonging for many folks across the state and the country, who also are tired of the partisanship." Sinema has not yet announced whether she will continue to caucus in the Senate with the Democrats, as independents Senators Bernie Sanders (I-VT) and Angus King (I-ME) do. Assuming she continues to caucus with the Democrats, this will preserve the 51-49 Senate majority.

10. FTC SUES TO BLOCK MICROSOFT ACQUISTION OF ACTIVISION BLIZZARD

On Thursday, the Federal Trade Commission voted to sue filed suit to prevent Microsoft from acquiring Activision Blizzard, charging that the $69 billion deal would help Microsoft become more dominant in the video gaming market. The Commission acted 3-1 on a party line vote. Microsoft believes that the acquisition could help it compete on a global scale with Nintendo and Sony. At press time, Microsoft had not issued a response.

11. FRESH START STUDENT LOAN INITIATIVE

The Office of Federal Student Aid at the U.S. Department of Education released guidance to guaranty agencies about the Fresh Start Initiative for federal student loan borrowers who are in default. The initiative is part of the Administration's strategy to help borrowers transition back into repayment following the extended pause on federal student loan repayment, interest, and collections in response to the COVID-19 pandemic. The Department of Education estimates that this effort will help 7.5 million borrowers return to repayment without a past due balance, which is expected to increase long-term repayment success. The guidance addresses borrower eligibility, guarantor communication requirements, eligibility, interest rates, involuntary collections, collection attempts, loan rehabilitation agreements, credit reporting, and consolidations. Specifically, the notice outlines guarantor obligations to resume interest rate accruals upon cessation of the pandemic payment pause, suspend collection attempts for one year following the end of the pandemic payment pause, and provide communications to eligible borrowers about their rights and benefits. The student loan payment pause is scheduled to end on December 31, 2022.

Read CED’s policy brief on the Administration’s student debt relief initiative here.

12. MONKEYPOX UPDATES

As of December 2, the US has confirmed a total of 29,630 cases of monkeypox. States with the highest case numbers include California (5,604), New York (4,169), Texas (2,832), Florida (2,818) and Georgia (1,965). Globally, as of December 5, 82,062 cases have been confirmed, with 81,089 cases confirmed in locations that have not historically reported monkeypox. The countries with the highest case numbers include the US (29,671), Brazil (10,044), Spain (7,408), France (4,110), and Colombia (3,852). A total of 52 deaths have been reported in locations that have not historically reported monkeypox. The World Health Organization has recommended using “mpox” as a substitute for monkeypox disease.

The Department of Health and Human Services (HHS) announced that it would not renew monkeypox as a public health emergency after January 31, 2023, because of the slowing of cases, although it will “continue to monitor the case trends closely [.]” Cases peaked in August with a seven-day average of 459 new cases and fell steadily over the past few months to an average of 7 cases by late November. HHS declared a public health emergency in early August. As of December 2, nearly 30,000 cases of mpox and 19 mpox-related deaths have been confirmed in the US.