Speech by Governor Cook on the economic outlook and U.S. productivity - Federal Reserve

Good morning. It is a pleasure to be back in Michigan, although I wish I had been here to participate in the Turkey Trot last week, which is an annual tradition for my family and me. It is especially a treat to be back in Detroit, with its rich history of music, art, architecture, and industrial innovation—which I will address today. I am also delighted to see some familiar faces.

Today, I would like to discuss the economic outlook and focus on one particularly important aspect of the economy: productivity. I have spent much of my career researching the ways in which American ingenuity and invention can be wellsprings of economic growth. I am here, therefore, to address the impressive innovation happening in the auto industry and what it tells us about future prospects for productivity in the U.S. manufacturing sector and in the economy more generally. I can think of no better place to do that than in the Motor City.

Outlook
To set the stage, I will first turn to the U.S. economy as a whole, where inflation remains much too high. As a result, the Federal Reserve must continue to focus on bringing inflation back down to our 2 percent target.

We have begun to see some improvement in the inflation data. The October report on consumer prices was encouraging, particularly the slowing in core inflation—the measure that excludes more volatile categories, such as food and energy. Producer price inflation also moderated in October, suggesting that inflation pressures on businesses may be easing. Nonetheless, I would be cautious about reading too much into one month of relatively favorable data.

Core goods inflation has finally begun to slow significantly, helped by some long-anticipated improvement in global supply chains. Declines in wholesale prices for used cars and in prices for key manufacturing components, like plastic resin and steel, also suggest continued moderation in goods price inflation.

Services, however, make up about two-thirds of consumer spending, and inflation in that sector has not yet slowed. Notably, inflation in housing costs shot up this year and will likely contribute substantially to overall inflation for some time. Nonetheless, some good news is emerging on this front. Rent increases on new leases have slowed in recent months. And a substantial number of multifamily units currently under construction will be delivered next year, helping to ease the housing shortage. Still, these positive developments are likely to feed into measured consumer prices only gradually.

Services prices more broadly have accelerated sharply this year and may prove to be a persistent factor keeping inflation elevated. Demand for services continues to recover from its pandemic lows, with the release of pent-up demand for travel evident to anyone who has spent much time in DTW and other airports recently.

Labor compensation is a key factor for non-housing services prices, and growth in labor costs remains well above pre-pandemic rates. There has been some moderation recently, with slowing in average hourly earnings and in the employment cost index. But wage growth remains above what would be consistent with 2 percent inflation, given prevailing trends in productivity growth.

Productivity
In Michigan and the other parts of the country that boast manufacturing hubs, we all understand the importance of productivity. Productivity growth is a key factor in the health of the overall economy and in the daily lives of all Americans. Because ultimately, it drives rising standards of living for all of us.

Growth in labor productivity, or output per hour worked, has been lackluster in the U.S. economy and around the world in recent years.¹ Some observers fret that we are running out of innovative ideas to squeeze more outputs from the same inputs.² Others look around and see amazing technology used in cutting-edge factories, warehouses, and stores and wonder if the innovation is happening but not spreading as fast as it once did. Whatever the cause, in recent years output per hour has only increased at half the rate it did as recently as the mid-2000s. This is cause for concern.

Over the first three quarters of 2022, productivity in the business sector has recorded a disappointing decline of 3-3/4 percent at an annual rate. Payroll employment in the private sector has continued to increase, yet gross domestic product (GDP) has done little more than move sideways, resulting in an outright decline in labor productivity. However, the recent decline in productivity is partly an artifact of the pandemic. In 2020 and 2021, productivity soared when firms found ways to keep producing while many employees were away from the workplace (figure 1). Meanwhile, the economy shifted away from services—a lower-productivity sector—and toward goods—a higher-productivity sector—as households substituted new televisions for dining out and family vacations. As a result, average productivity moved up. These temporary changes have largely reversed, leading to the recent declines in productivity, pushing it back toward its pre-pandemic trend. The tight labor market has played a role, as well. With 1.8 job openings for every job seeker, firms may be using the GDP slowdown as an opportunity to let their hiring catch up to the earlier surge in labor demand. Some firms may even be operating with a larger workforce than necessary in order to hold on to talent they may not have retained in normal times.

In any event, we should avoid making too much of quarterly swings in choppy data but focus instead on the trend over several years. Taking this longer view, what pace of productivity growth should we expect going forward? This question is critical to policymakers, as inflation is tied to productivity. When firms see rising output per hour, they have room to keep prices low. For consumer goods, this can help lower inflation. For material inputs, this lowers the cost of downstream production. And for equipment, lower prices mean more capital investment, a knock-on effect that boosts productivity further.

If there is a productivity revival, it will likely involve manufacturing, if history is our guide. When it comes to productivity, the sector has a record of punching above its weight. Since the mid-20th century, manufacturing productivity has risen a full percentage point faster than productivity for the broader economy (figure 2). The sector seems to find ways to do more with less. For example, manufacturing lost a staggering 5 million workers from 2000 to 2019, nearly 40 percent of its workforce. As seen in Michigan, this meant difficult transitions for industrial workers and their families as the economy shifted toward services and substituted imports for domestic production. Yet, at the same time, output as measured by the Federal Reserve's industrial production index continued to climb.

Since the mid-2010s, though, this relationship has reversed, and manufacturing productivity has been noticeably lower than that of the overall economy. What explains the anemic growth in recent years? For one thing, IT equipment manufacturing has moved offshore, taking the productivity gains from progressively smaller and faster computer chips with it.³ More generally, offshore locations have focused on production of high-volume goods. Many of the remaining U.S. plants produce more specialized products, which tend to require more specialized labor and have lower productivity growth.⁴

The motor vehicle industry has mostly defied this trend of offshoring final production. The U.S. motor vehicle industry still produces more than 10 million vehicles a year and employs 1 million people at assembly plants, labs, and suppliers. Furthermore, it is an extremely innovative industry, and fierce competition forces automakers to roll out innovations quickly. Dozens of motor vehicle research and development labs reside in Michigan alone, churning out ideas for vehicle safety, fuel efficiency, comfort, and style. And with each passing year, cars and trucks look more like computers on wheels.

Looking around Michigan today, I see all kinds of changes. Some changes are to the production process, like the newest generation of robots. These communicate at lightning speed, using the same high-speed "5G" technology as the latest phones; utilize artificial intelligence to adapt to their environment; and operate safely right next to workers on the assembly line. Some changes are to design, like collision avoidance systems, sophisticated navigation apps, and the dozens of electric vehicles now on the road or coming to market soon.

Some observers look at these changes with trepidation. Robot orders surged after the onset of the pandemic and have continued apace, a partial solution to the critical shortage of labor in manufacturing.⁵ What does all this mean for production line workers? Motor vehicle manufacturers have been the most intensive users of robots for decades. The first assembly line robot was rolled out in 1961 by General Motors in Trenton, New Jersey. Yet, the motor vehicle industry still employs more than 1 million workers, and its share of manufacturing employment has been going up since 2010. How did that happen? Research has shown that workers are not just suited for a single job—they have a bundle of broadly applicable skills. When robots take over one task, workers are shifted to another task and, in turn, new tasks appear.⁶ The set of tasks to perform is not fixed, a belief economists call the "lump of labor fallacy." Rather, we need production workers to work with the new equipment and to focus on the problem-solving that robots do not do well. That means that the next generation of plant workers will use touch screens a lot more and rivet guns a lot less.

And the systems they install as they assemble the vehicles are more laden with electronics with each passing year. Many are anticipating the arrival of the self-driving car, but in some respects, it is already here. Vehicles can parallel park themselves with the touch of a button, stop you from drifting out of your lane, and follow the car ahead of you, keeping a safe distance.

While the U.S. is not making as many semiconductor chips anymore, we are using a lot of them. If that was not apparent already, we learned that lesson the hard way during the pandemic. I understand that, even now, thousands of vehicles are all but built, parked while they await missing chips. The increasing share of electronic content in vehicles contributes to that delay, as does the shift toward electric vehicles, which may have two or three times the chip content of an internal combustion vehicle. The shortfalls in supply and corresponding price pressures have eased somewhat, but they have not disappeared.

Highly innovative companies in the motor vehicle industry—as well as pharmaceuticals, biotechnology, and, of course, information technology—stand out as leaders in driving the quality of goods up and the cost of production down. Why isn't that showing up in productivity? For one thing, it takes time. History has shown that major innovations take years for their effects to be fully manifested. Firms have to reorganize production—including changing the layout of plants, rethinking management, and reshuffling workers—to maximize their talents.⁷ Electrification of the manufacturing sector took decades as plants were redesigned and rebuilt to exploit the flexibility of getting away from steam power.⁸ Likewise, we still have not seen the last of the changes that the IT revolution will bring.

Productivity-enhancing ideas spread more quickly in more dynamic environments. When labor and capital move quickly toward their best uses—at the more productive firms—overall productivity accelerates. And when firms have close competitors on their heels, they may adopt new techniques faster.⁹ Entrepreneurship plays an important role in this process. Sometimes, a new idea needs a new firm not committed to old ways of doing business. This kind of dynamism has diminished in recent years, though the surge in business creation in the past two years may be an encouraging sign.¹⁰

Indeed, the U.S. manufacturing sector is healthy. The recovery from the pandemic downturn has been remarkable, especially in comparison to the Great Recession. The sector is currently producing at 3 percent above its pre-pandemic level. And, importantly, October marked 18 consecutive months of increasing manufacturing employment. If manufacturing were to return to its role as a productivity leader, productivity for the total economy would grow noticeably faster.

Looking ahead, productivity plays an important role in our thinking about the outlook. Productivity growth raises the nation's per capita income and, one hopes, the welfare of the typical household. As I mentioned earlier, productivity growth may also help lower prices. If we can make more with less, firms can lower the cost of the final product and still remain profitable. For this reason, it is heartening to see all the innovation happening in the motor vehicle industry and throughout the economy. It is hard to know exactly when all the benefits will show up, but we know the historical evidence suggests they are coming.

Policy Implications
What does all this mean for monetary policy? Innovation and productivity growth undergird our long-term growth prospects, but they have only an indirect link to current inflation developments. More broadly, the auto sector and manufacturing overall serve as a microcosm to observe many factors buffeting the economy and impacting consumer prices, such as bottlenecks and labor shortages. Notwithstanding some easing of these pressures on goods prices, services prices continue to rise briskly. Altogether, inflation is still unacceptably high and must be our primary focus.

The Federal Reserve has taken significant steps to rein in price increases. Since March, the Federal Open Market Committee (FOMC) has raised its policy rate nearly 4 percentage points, an unusually rapid pace of increases that has significantly tightened financial conditions. That tightening is clearly slowing demand in sectors that are interest sensitive, especially housing, with residential investment contracting sharply. Consumer spending has remained resilient, however, supported by labor income growth and still-elevated savings.

As we said in the most recent FOMC statement, we anticipate "ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time."¹¹ What policy rate is sufficiently restrictive we will only learn over time by watching how the economy evolves. Given the tightening already in the pipeline, I am mindful that monetary policy works with long lags. Thus, as we get closer to that uncertain destination, it would be prudent to move in smaller steps. How far we go, and how long we keep rates restrictive, will depend on observed progress in bringing down inflation. But rest assured, we will keep at it until the job is done.

Thank you.

---

1. See Mehrdad Esfahani, John G. Fernald, and Bart Hobijn (2020), "World Productivity: 1996–2014," ASU Center for the Study of Economic Liberty Research Paper (Tempe, Ariz.: Arizona State University, March). Return to text

2. See Robert J. Gordon and Hassan Sayed (2019), "The Industry Anatomy of the Transatlantic Productivity Growth Slowdown," Working Paper 25703 (Cambridge, Mass.: National Bureau of Economic Research, March); Nicholas Bloom, Charles L. Jones, John Van Reenen, and Michael Webb (2020), "Are Ideas Getting Harder to Find?" American Economic Review, vol. 110 (April), pp. 1104–44. Return to text

3. In 1975, Gordon Moore predicted that the number of transistors found on integrated circuits (semiconductors) would double every two years. The accuracy of this prediction, known as Moore's Law, is used as a barometer of the pace of technical advance in the electronics industry. Return to text

4. Mismeasurement could also be a contributor to the lackluster productivity gains in manufacturing. See Susan Houseman, Christopher Kurz, Paul Lengermann, and Benjamin Mandel (2011), "Offshoring Bias in U.S. Manufacturing," Journal of Economic Perspectives, vol. 25 (Spring), pp. 111–32; David M. Byrne, John G. Fernald, and Marshall B. Reinsdorf (2016), "Does the United States Have a Productivity Slowdown or a Measurement Problem?" Finance and Economics Discussion Series 2016-017 (Washington: Board of Governors of the Federal Reserve System, March). Return to text

5. According to the Quarterly Survey of Plant Capacity, over 40 percent of manufacturers report difficulty hiring workers, triple the rate before the pandemic. The Association for Advancing Automation reports that as of 2022:Q3, orders were 50 percent higher than two years earlier. Return to text

6. See David H. Autor (2015), "Why Are There Still So Many Jobs? The History and Future of Workplace Automation," Journal of Economic Perspectives, vol. 29 (Summer), pp. 3–30; Daron Acemoglu and Pascual Restrepo (2020), "Robots and Jobs: Evidence from U.S. Labor Markets," Journal of Political Economy, vol. 128 (June), pp. 2188–244; Gilbert Cette, Aurélien Devillard, and Vincenzo Spiezia (2021), "The Contribution of Robots to Productivity Growth in 30 OECD Countries over 1975–2019," Economics Letters, vol. 200 (March). Return to text

7. See Erik Brynjolfsson, Daniel Rock, and Chad Syverson (2021), "The Productivity J-Curve: How Intangibles Complement General Purpose Technologies," American Economic Journal: Macroeconomics, vol. 13 (January), pp. 333–72. Return to text

8. See Paul A. David (1990), "The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox," American Economic Review, vol. 80 (May), pp. 355–61. Return to text

9. The relationship between competition and innovation is complicated and a matter of some debate. See Philippe Aghion, Nick Bloom, Richard Blundell, Rachel Griffith, and Peter Howitt (2005), "Competition and Innovation: An Inverted-U Relationship," Quarterly Journal of Economics, vol. 120 (May), pp. 701–28. In addition, see the discussion of the literature in Rachel Griffith and John Van Reenen (2021), "Product Market Competition, Creative Destruction and Innovation," CEPR Discussion Paper No. DP16763 (Washington: Center for Economic and Policy Research, November). Return to text

10. See Ryan Decker, John Haltiwanger, Ron Jarmin, and Javier Miranda (2014), "The Role of Entrepreneurship in U.S. Job Creation and Economic Dynamism," Journal of Economic Perspectives, vol. 28 (Summer), pp. 3–24. Return to text

11. See Board of Governors of the Federal Reserve System (2022), "Federal Reserve Issues FOMC Statement (PDF)," press release, November 2. Return to text

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Speech by Governor Cook on the economic outlook and U.S. productivity - Federal Reserve
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Citi warns 'rolling recessions' will shake global economy in 2023 - Yahoo Canada Finance

The global economic outlook for 2023 is murky at best, economists at Citi warn.

"As we survey the prospects for the global economy, we see many reasons for concern, including continued challenges from the pandemic and the Russia-Ukraine war, high inflation, and headwinds from central bank rate hikes," Citi chief economist Nathan Sheets wrote in a client note Wednesday.

"Reflecting these factors, the global economy is likely to endure 'rolling' country-level recessions during the coming year."

Citi believes the eurozone and U.K. will enter a recession by the end of this year. The U.S. stands to enter a recession by mid-2023, Sheets believes, as the full impact of higher interest rates from the Federal Reserve is felt on consumers and businesses.

The relative winner, believe it or not, may be China.

"We see growth [in China] accelerating as the authorities soften the zero-Covid policy," Sheets wrote.

"Still, excluding China, global growth next year will be running close to some definitions of global recession. More positively, many of the recessions in our forecast are relatively mild and should help pave the way for improved performance by early 2024."

An employee works on a production line manufacturing steel structures at a factory in Huzhou, Zhejiang province, China May 17, 2020. Picture taken May 17, 2020. China Daily via REUTERS

Investors, however, appear to have forgotten about this sluggish outlook for global growth in 2023.

Amid signs of easing inflation, lower oil prices, and a renewed drop in the dollar, stocks have rallied since reaching recent lows in October. In the past month, the Dow Jones Industrial Average (^DJI) is up 3%, the S&P 500 (^GSPC) has gained 1.5%, and the tech-heavy Nasdaq Composite (^IXIC) is mostly flat.

Those gains are now under pressure as concerns mount over a contentious COVID-19 lockdown situation in China and how large manufacturers such as Apple will be impacted.

In the past week alone, strategists at Goldman Sachs have used the renewed market weakness to recommend investors gain more exposure to cash and have less risk tied to stocks and bonds.

"We remain relatively defensive for the three-month horizon with further headwinds from rising real yields likely and lingering growth uncertainty," Goldman Sachs strategist Christian Mueller-Glissmann wrote this week.

Meantime, BNP Paribas has also outlined a tough road ahead for the global economy and stocks.

"We expect a downturn in global GDP growth in 2023, led by recessions in both the U.S. and the eurozone, with below-trend growth in China and many emerging markets," the BNP strategy team said in a note.

"We expect new lows for equities in 2023. The 2022 correction has been mostly valuation-driven, and we expect 2023 to be all about earnings, supporting higher realized volatility."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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Citi warns 'rolling recessions' will shake global economy in 2023 - Yahoo Canada Finance
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Russian economy shrinks 1.7% in Jan-Sept, but capital investment up - Reuters

• Summary

• This content was produced in Russia where the law restricts coverage of Russian military operations in Ukraine

MOSCOW, Nov 30 (Reuters) - The Russian economy shrank 1.7% year on year from January to September, but capital investment, one of the main economic growth drivers, rose 5.9% in the same period, data from the Rosstat federal statistics service showed on Wednesday.

The export-dependent economy has withstood the impact of sweeping Western sanctions better than initially expected, although the government still has to contend with falling real wages, slumping retail sales and rising inflation.

The economy ministry expects Russia's gross domestic product (GDP) to fall 2.9% this year, a far cry from early assumptions that the economy could contract as much as 12% because of the sanctions imposed in response to what Moscow calls its "special military operation" in Ukraine.

Capital investment rose 5.9% year-on-year between January and September to reach 16.418 trillion roubles ($271.65 billion), Rosstat said.

Official unemployment remained at 3.9% in October, just above August's record low of 3.8%, Rosstat data showed on Wednesday, but real wages, which are adjusted for inflation, fell 1.4% year on year in September.

Data also showed that retail sales, the gauge of consumer demand, declined 9.7% in October in year-on-year terms after a 9.8% fall in the previous month.

All that comes as consumer prices climbed for the 10th week running, perhaps giving the central bank pause for thought. The Bank of Russia is widely expected to keep its key rate unchanged at 7.5% when its board meets on Dec. 16.

($1 = 60.4390 roubles)

Reporting by Alexander Marrow and Darya Korsunskaya; Editing by Mark Trevelyan

Our Standards: The Thomson Reuters Trust Principles.

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Russian economy shrinks 1.7% in Jan-Sept, but capital investment up - Reuters
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Canadian dollar dives by most in a month as economy sputters - BNN Bloomberg

Canada’s dollar slumped Tuesday - at one stage falling by the most in more than a month -- even as major peers like the Australian and New Zealand dollars gained ground against the greenback. 

The currency was weighed down by signs that the domestic economy is wavering, although the scale of the move relative to major peers had some wondering whether the shifts were more a function of flow and market dynamics than a drastic rethink of the overall outlook.

The tumble also came in the wake of news that British bank HSBC Holdings Plc plans to sell its Canadian unit to Toronto-based Royal Bank of Canada, a transaction that could potentially spur outflows, while preliminary data for October showed the nation’s economy appears to be stalling out and crude oil prices handed back much of their earlier gains. With month-end drawing near, positioning dynamics could also be playing a role, analysts suggested.

The Canadian currency weakened as much as 1.1 per cent to $1.3646 per U.S. dollar, its biggest intraday slide since Oct. 13, before moderating. It was around 0.6 per cent weaker on the day at 2:30 p.m. New York time and on track for its third straight day of declines.

“This feels flow related, but with questionable fundamental underpinnings,” Canadian Imperial Bank of Commerce currency strategist Bipan Rai wrote in a note to clients. “I suspect that participants are squaring up strategic CAD longs on the crosses. But even then, the move we saw today was very excessive.”

He said that while he had “reservations with the guts of the GDP report,” he had doubts about its role in driving the FX market move. Preliminary data show gross domestic product was flat in October, Statistics Canada reported Tuesday, potentially giving the central bank leeway to slow down the pace of rate hikes. The Bank of Canada has already begun slowing down its pace of rate hikes, after increasing the benchmark overnight lending rate to 3.75 per cent from the emergency pandemic low of 0.25 per cent that held until March.

West Texas Intermediate crude oil prices, meanwhile, held below US$80 a barrel following an unconfirmed report that OPEC+ will stick with its current oil output policy rather than potentially trimming supply further. While the benchmark was up around 1.6 per cent on the day, it was well below its session peak, having risen as much as 3.1 per cent earlier on Tuesday.

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Canadian dollar dives by most in a month as economy sputters - BNN Bloomberg
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What protests in China may mean for the economy - CNN

A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.

New York CNN Business  — 

Protests against China’s prolonged and restrictive Covid regulations spread across the country over the weekend. The demonstrations against Chinese President Xi Jinping and his costly zero-Covid policy are an exceedingly rare case of widespread civil disobedience.

While the protests represent an unprecedented challenge for Xi, they also carry economic and market implications. Oil plunged and hit 2022 lows on Monday, while shares of companies that rely on China for production felt the heat. Apple fell by 2.6% following reports that unrest at one of its factories could result in 6 million fewer iPhone Pros this year.

What’s happening: China’s controversial zero-Covid policy has affected everyday life and weighed heavily on the economy. When outbreaks get bad enough, entire cities are closed: Shanghai was shut down for about two months this spring and Chengdu, a city of 21 million people, was locked down in the fall.

Earlier this month, Beijing eased some Covid-related restrictions, sparking hopes that the economy could soon fully reopen, but local governments once again tightened controls as cases surged. The policy doesn’t seem to be working, as cases hit record highs, but China’s low vaccination rate, relatively ineffective vaccines and aging population mean the alternative could be very deadly.

The mounting political tension has also been difficult to interpret. The protests at first seemed focused on Covid restrictions, but now appear to carry broader demands for political reform: The blank sheets of paper held up by demonstrators in Shanghai, the country’s financial hub, have already become iconic symbols of defiance against a government that limits free speech.

Economic impact: People under lockdowns say they struggle to find food and other necessities. Economic growth has slumped and unemployment has been been rising as a consequence of the lockdowns.

The policy has also led to major global production constraints that are sustaining inflation. Global supply chain pressures increased moderately in October after five consecutive months of easing, largely due to increases in Asian delivery times, according to the Federal Reserve Bank of New York’s Global Supply Chain Pressure Index.

However, commodities slid on China concerns Monday. Oil prices dropped sharply, with investors concerned that surging Covid cases and protests in China may sap demand from one of the world’s largest oil consumers.

What’s next: Chinese government officials are in a strange spot. They don’t want to end their covid policy but they also want to ensure that the political unrest doesn’t grow. Companies that do business in China are watching closely for any clues about what the future may hold. They’re also considering moving production away from the country in the long term — Apple has already shifted some of its manufacturing to India.

Goldman Sachs, in a research report published late on Sunday, predicted that protests could lead China to scrap its zero-Covid policy earlier than previously expected, with “some chance of a forced and disorderly exit.”

But the next few days could be pivotal. If protests flare up again, the Chinese government will likely be forced to react in some way. On Tuesday, it announced an “action plan” to boost vaccination rates among the elderly. But “with a rapid spread of new COVID cases, it’s hard to envision a broad lifting of restrictions that would boost the country’s economic outlook for next year significantly,” said Christopher Smart, chief global strategist at Baring. “In any case, the continuing uncertainty of pandemic policy will lead to further pressures on global supply chains and keep prices higher than they would otherwise be.”

Big data week

US investors took a short break from the trading floor last week as they celebrated the Thanksgiving holiday. Now, the vacation is definitely over. This week is chock full of important economic data releases, many of which will help guide the Fed’s next interest rate hike decision in December.

Here’s what to keep an eye out for.

Tuesday brings a housing bonanza: At 9 a.m. ET the September House Price Index (HPI), a measure of the change in single-family house prices, is due out. The September S&P/Case-Shiller House Price Index, which measures the change in the selling price of single-family homes in 20 metropolitan areas across the United States, is also due out.

Also on Tuesday: The Conference Board’s November measure for the level of consumer confidence in economic activity. That’s a leading indicator as it can predict consumer spending.

Wednesday is a big Fed day: Federal Reserve Chair Jerome Powell will discuss the economy and labor market at an event hosted by the Brookings Institution at 1:30 p.m. ET. A question and answer session with the audience is also expected. Traders will closely watch his speech for hints about future monetary policy.

Fed Governor Lisa Cook will also discuss the economic outlook and monetary policy at an event hosted by the Detroit Economic Club, and Fed Governor Michelle Bowman will discuss the future of small banks, with a question and answer session afterward.

More data: Wednesday also brings some employment data. First up is The ADP National Employment Report, a measure of the monthly change in private employment, based on the payroll data of approximately 400,000 US business clients. Next comes October JOLTS, a survey by the US Bureau of Labor Statistics to measure job vacancies.

Revised numbers for third-quarter GDP and PCE inflation are also expected out and October Pending Home Sales which measures the change in the number of homes under contract to be sold.

Thursday is all about inflation: October’s Personal Consumption Expenditure Price Index is expected at 8:30 a.m. ET. The index measures changes in the price of goods and services purchased for consumption. Core PCE, which excludes gas and food, is the Fed’s preferred inflation measure.

Friday is jobs day: Here comes government unemployment numbers for November. Given that full employment is one of the Federal Reserve’s mandates, it is very closely watched.

Chicken is on the menu this holiday season

Expect heavier holiday promotions this season, say Bank of America analysts. Why? Retailers are dealing with an excess of inventory they’re trying to get rid of, but it also comes down to timing.

Last year, Americans did their holiday shopping earlier in the year because they were worried about shortages and because the Omicron Covid wave kept people out of stores ahead of the holidays. This year things are expected “to mimic a normal pre-pandemic holiday,” wrote the analysts, with the exception of one thing: There’s an additional day between Thanksgiving and Christmas this year because Christmas Eve falls on a Saturday.

“We think this will likely result in a frenzied game of chicken, with shoppers waiting until the very last minute for great deals and retailers balancing selling at the highest price with moving through enough product,” said Lorraine Hutchinson, a research analyst at Bank of America.

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What protests in China may mean for the economy - CNN
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How will the space economy change the world? - McKinsey

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The passengers who boarded commercial flights just after World War II didn’t know that air travel would begin to soar over the next decade, nor did the masses who first logged onto the internet in the 1990s realize that computers would one day provide much of their news, entertainment, and social life. And today, few people understand that the space economy—broadly defined as activities in orbit or on other planets that benefit human beings—could soon transform how they live and work.

Some hints of the coming changes are apparent, including the frequent headlines about SpaceX, Blue Origin, and other private companies launching their own rockets and deploying satellite constellations. These activities, once primarily the domain of government agencies, are now possible in the private sector because recent technological advances in manufacturing, propulsion, and launch have made it much easier and less expensive to venture into space and conduct missions. Lower costs have opened the door to new start-ups and encouraged established aerospace companies to explore novel opportunities that once seemed too expensive or difficult. The technological improvements have also intrigued investors, resulting in a surge of space funding over the past five years.

The potential for innovative space applications is immense, especially if established aerospace companies form partnerships with businesses that traditionally haven’t ventured into orbit. Pharmaceutical companies might establish a lab on a space station to study cell growth, for instance, or semiconductor companies might manufacture chips in extraterrestrial factories to determine whether any aspects of the space environment, such as the lack of gravity, improve the process. Such possibilities, which might have seemed like the stuff of science fiction a few years ago, could become an essential part of a business across multiple industries in the near future.

But how and when should companies take advantage of their greater access to space and pursue emerging use cases? And how can they decide what opportunities are most promising when the technology is so nascent? Although much remains uncertain, companies that begin exploring these questions now could gain a long-term advantage.

The benefits of the space economy—with more to come

Space has long been a potent incubator for innovation—first from governments and large telcos and now from multiple private companies as well. From the launch of Sputnik 1 in 1957 through today, the space economy has delivered most of its value through satellite services, including communications and data and image collection and analysis. Satellites help large companies with multiple tasks, including inventory monitoring at distant locations, instant authorization of credit-card transactions, and international videoconferencing. Consumers use satellite technology whenever an online navigation system pinpoints their location, or when they make calls during plane flights or from rural locations that lack cell phone towers. And television viewers can thank satellites for beaming the signals that allow them to watch their favorite programs. The role of satellites in these activities is often overlooked—many people may think terrestrial computer networks provide the necessary connectivity—unless a glitch occurs and draws attention to the unobtrusive technology operating in the background.

In addition, satellites help world leaders address intractable social, environmental, and economic challenges. Consider a few ways that satellite data can provide insights—often more effectively and comprehensively than other sources:

• Climate change. More than 160 satellites monitor Earth to assess the effects of global warming and detect activities, such as illegal logging, that might contribute to the problem. ¹ 1. Six ways space technologies benefit life on Earth, World Economic Forum, Global Future Council on Space Technologies, October 16, 2020. NASA has used an instrument mounted on its Aqua satellite to monitor environmental changes, including those related to ocean water, water vapor, clouds, sea and land ice, and precipitation, for more than 20 years. Other satellites provide information that can help government agencies take urgent action on wildfires, coastal erosion, and other climate-related natural disasters.
• Food security. Satellite data is increasingly used to monitor crop development and potential threats to harvests, such as drought or insect invasions. The SERVIR project, a partnership between NASA and the US Agency for International Development, uses data from Earth-imaging satellites and geospatial technologies to help governments address multiple issues, including food shortages.
• National security. Governments, often working with companies in the private sector, can use satellite images and data to gain valuable intelligence, such as information on the movement of troops or the installation of weapons systems.

According to the not-for-profit Space Foundation, the space economy was valued at $469 billion in 2021, up 9 percent from 2020, the highest recorded growth since 2014. ² 2. See “Space Foundation releases The Space Report 2022 Q2 showing growth of global space economy,” Space Foundation, July 27, 2022; and Michael Sheetz, “The space economy grew at fastest rate in years to $469 billion in 2021, report says,” CNBC, July 27, 2022. Although the space economy now generates most value by enabling or enhancing activities on Earth, significant future value could arise from functions that occur entirely in orbit, such as in-orbit servicing, research and development, and manufacturing. That said, the satellite services available today will remain important and could be critical to some emerging use cases.

Finally, a tipping point

Researchers and other space enthusiasts have long discussed the potential for business activity in orbit, or even the development of space cities. But now, with lower costs and greater technological capabilities, the space economy may finally be at a tipping point, where businesses can conduct large-scale activities in space. As costs continue to drop, even more companies may contemplate space ventures; and for the first time, they might even be able to profit from forays into space.

More launches, lower costs

The costs for heavy launches in low-Earth orbit (LEO) have fallen from $65,000 per kilogram to $1,500 per kilogram (in 2021 dollars)—a greater than 95 percent decrease. ³ 3. Thomas G. Roberts, “Space launch to low Earth orbit: How much does it cost?,” Aerospace Security, September 1, 2022. Computer-aided design, 3-D printing, and other innovations have contributed to the cost reductions by streamlining the manufacturing process and improving supply chains. The emergence of new commercial launch providers that prioritize efficiency is also helping. For instance, engineers at these companies have developed reusable components for launch vehicles, which lowers costs while promoting sustainability. The recent increase in launch frequency, particularly at SpaceX, is accelerating the drop in costs.

Current R&D efforts could reduce launch costs even further. Relativity Space, for instance, plans to use 3-D printing, artificial intelligence, and autonomous robotics to build a fleet of fully reusable, low-cost rockets. The first launch for these vehicles is planned for 2024 at Cape Canaveral, Florida. Similarly, SpaceX plans to conduct a full-scale, orbital test flight for its reusable Starship launch vehicle—the tallest and most powerful ever built—in late 2022.

Smaller satellites, bigger gains

The size and weight of satellites have fallen significantly in recent years because of various advances, primarily driven by private companies, such as the use of lighter solar panels and more efficient batteries. These changes, combined with greater use of commercial, off-the-shelf components, have decreased satellite costs and made their launch and operation feasible for many more organizations. Greater satellite demand is also improving costs because manufacturers obtain economies of scale by increasing production volume. These lower costs have helped alter the space landscape. Large government satellites, some of which cost upward of $1 billion and tend to be deployed in orbits far from Earth, are now outnumbered by smaller commercial satellites in LEO, often deployed in constellations, that can cost $100,000 or less.

In tandem with the cost decrease for satellites, researchers have created new technologies, such as higher-resolution sensors, that are boosting image capture, data processing, and other functions. Satellites can now collect, analyze, and transfer much larger stores of data than they could just five years ago.

Greater investment, more innovation

Public agencies, especially NASA and the US Department of Defense and Intelligence Community, have traditionally provided most space investment. While these agencies will continue to be a major source of funding, the combination of lower costs and more sophisticated technology is attracting more investment from both special-purpose acquisition companies (SPACs) and private investors—a trend that is driving innovation.

In 2021, private-sector funding in space-related companies topped $10 billion—an all-time high and about a tenfold increase over the past decade. The percentage of global space R&D funding coming from the US government decreased from about 70 percent to around 50 percent over the same period. ⁴ 4. “The space report online,” Space Foundation, 2021; The space economy at a glance, OECD, July 22, 2011. Meanwhile, the number of space-related start-ups funded annually increased more than twofold from 2010 to 2018. ⁵ 5. Start-up space: Update on investment in commercial space ventures, Bryce Tech, 2021. Commercial funding could surpass government funding within 20 years, a trend that government is largely embracing and that could lead to mutually beneficial public–private partnerships.

New use cases and more momentum

Although much uncertainty persists, analysts are so optimistic about space that some believe it will become a $1 trillion industry, thanks to enhancements to existing use cases and the development of entirely new applications. Much progress, including further reductions in launch and operational costs, must be made before many ambitious space projects can become a reality, but continued technology improvements are encouraging companies to increase their investments in the space economy now. The new use cases can be divided into two broad categories: space-for-Earth applications, which facilitate terrestrial activities, and space-for-space applications, which only involve activities that occur in orbit.

Space-for-Earth applications

Satellites are becoming more sophisticated each year, allowing researchers to enhance existing use cases and develop new offerings. Many companies have recently deployed smaller, less expensive satellites in LEO—an orbit that is ideal for high-bandwidth, low-latency communications—to provide better satellite connectivity. While most past efforts to launch LEO constellations failed because of high costs, limited demand, and inadequate funding, the situation is much different today. SpaceX’s Starlink has already launched an LEO constellation and has paying customers for its satellite broadband network. OneWeb and Amazon’s Project Kuiper, among others, also plan to deploy LEO constellations soon. Satellite imaging, another technology frequently used in current applications, has also improved and could enable multiple new use cases by providing more detailed and accurate information.

Some of the most important space-for-Earth applications include the following:

• Internet services in remote locations. Terrestrial networks are often difficult or uneconomical to install in underserved or rural areas. Beyond basic inconveniences, a lack of connectivity can interfere with vital services, including provision of remote learning or online medical consultations. By providing internet services to these areas, satellite connectivity could increase educational equity and social interactions and improve public health, especially in cases where the COVID-19 pandemic still limits some in-person interactions.
• Agriculture. Space-based remote sensors collect a multitude of data, including images, information on weather patterns, and measures for electromagnetic waves, all of which have applications for agriculture. McKinsey’s annual digital farmer adoption survey shows that 29 percent of row-crop farmers and 45 percent of specialty-crop farmers already rely on such data or plan to do so. The greatest value from satellite sensors for agriculture relates to yield-improvement opportunities. For instance, farmers can use satellite images to identify areas that require replanting early in the season, rather than conducting a manual inspection that might be time consuming and miss some areas of the field.
• Energy. Utilities can use satellite data to monitor vegetation that might be interfering with critical infrastructure, including power lines. By addressing the problems before they escalate, companies might avoid power outages.
• Mining. Satellites can support some of the most important functions at mining companies. Better connectivity might improve productivity at remote sites by helping headquarters-based experts communicate with local staff to solve problems. Satellite data can also help mining companies map emissions, monitor shipments along the supply chain, and improve exploration efforts by identifying mineral-rich areas.
• Insurance. Better imaging might allow more insurers to cost-effectively assess risks and damages at remote locations, with improved resolution and greater image-sequencing frequency pinpointing problems more clearly and eliminating the need for in-person visits. Pilot tests of radio-frequency-based mapping, which can detect “hidden” shipping activity, could help maritime and commodities-based hedge fund customers track the movement of goods overseas.

Space-for-space applications

Many of the emerging “space for space” applications are now possible for the first time because lower costs make frequent launches and long-term missions more financially viable. Consider a few use cases that could gain traction:

• Research and development. Space R&D is not a new application, but businesses outside the aerospace sector have not traditionally undertaken large-scale projects in this area. With lower costs and better technologies, however, this could change as companies build upon the research done to date on the International Space Station. Among other applications, pharmaceutical companies could develop cell cultures for predicting disease models. While these cultures develop in well-known patterns on Earth, the novel environment in space would shift growth patterns and reveal new insights. Similarly, consumer goods companies might want to develop products in space, where high levels of radiation, a near vacuum-like state, and zero gravity might improve design and manufacturing. For instance, a manufacturer of beauty products might discover new information about skin care in the harsh space environment, which accelerates aging.
• Manufacturing, construction, and assembly. Super-heavy launch vehicles, such as SpaceX’s Starship, may make it easier for companies to create factories or manufacturing plants in orbit. Some semiconductor companies are already exploring the potential for creating chips at such facilities, since the natural vacuum in space could potentially facilitate innovative thin-layering techniques by reducing or eliminating gases during production.
• Greater exploration and habitation in space. Innovative forms of deep space exploration, including crewed missions to Mars, might become possible if technologies such as nuclear propulsion continue to advance. Some leaders, including Jeff Bezos of Blue Origin, are already speculating that large numbers of people may even be able to live and work in space. Recent headlines about space tourism may be the first sign that space is no longer the domain of a few carefully selected astronauts.

Activity in most of these space-for-space areas is now very limited, but further technological improvements, such as laser communication between satellites and better edge processing (making sense of data in space, rather than after downloading it) could accelerate progress. Although it’s still difficult to determine which use cases, if any, will gain significant traction, industry stakeholders may promote progress by considering measures that will help space companies and others navigate the new landscape. For instance, guidelines about use of orbits might help reduce the chance of collisions in space that could result in debris.

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Thanks to lower costs and greater access, space is no longer the sole domain of large aerospace companies or public agencies with vast budgets. It’s a place that can deliver many benefits—both on Earth and in orbit—to almost any business sector. Across industries, from pharmaceuticals to semiconductors, some companies are already expanding their space capabilities, exploring new use cases, or piloting innovative applications. In a few years, industry leaders may compare these early movers to businesses that recognized the internet’s potential in the early 1990s and moved quickly to establish an online presence. The challenges ahead—both technological and financial—can’t be understated, but the potential of space is also immense. Companies that ignore it, either because they are bogged down in current challenges or underestimate the opportunities ahead, might eventually find themselves scrambling to catch up to the early leaders.

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How will the space economy change the world? - McKinsey
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How to protect your investments in a rapidly changing economy  Guelph Mercury Tribune
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India's economy likely slowed to annual 6.2% in July-Sept - Financial Post

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BENGALURU — The Indian economy likely returned to a more normal 6.2% annual growth rate in July-September after double-digit expansion in the previous quarter, but weaker exports and investment will curb future activity, a Reuters poll showed.

In April-June, Asia’s third-largest economy showed explosive growth of 13.5% from a year earlier thanks mainly to the corresponding period in 2021 having been depressed by pandemic-control restrictions.

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But with the Reserve Bank of India (RBI) now raising interest rates to tamp inflation running above its target range of 2% to 6% target, the economy is set to slow further.

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The 6.2% annual growth forecast for latest quarter in a Nov. 22-28 Reuters poll of 43 economists was a tad lower than the RBI’s 6.3% view. Forecasts ranged between 3.7% and 6.5%.

“The exceptionally favorable base of the April-June ’22 quarter is behind us, which will result in a normalization of the year-on-year real GDP growth rate from July-Sept ’22 onward and also make it easier to gauge the true underlying economic momentum,” said Kaushik Das, India and South Asia chief economist at Deutsche Bank.

Although business surveys indicated weakening economic activity in most major economies, where central banks are responding to soaring inflation with higher interest rates, business sentiment has remained relatively strong in India.

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Still, industrial production increased at an annual pace of only 1.5% on average last quarter, its weakest in two years, pointing towards a significant slowdown in manufacturing activity, a key driver of growth.

“GDP is expected to increase sequentially, led by continued recovery in services. Mining and manufacturing are expected to be a drag. On the demand side, lower global growth hit exports in Q2 (July-September),” said Sakshi Gupta, principal India economist at HDFC Bank, adding there were signs that consumption was uneven.

The finance ministry said on Nov. 24 a global slowdown might dampen the country’s export businesses outlook. Meanwhile, the RBI raised its key policy interest rate to 5.9% from 4.0% in May and is widely expected to add another 60 basis points by the end of March.

“Between December and February, the headwinds to growth may become more evident,” said Deutsche Bank’s Das. (Reporting by Indradip Ghosh; Polling by Vijayalakshmi Srinivasan, Veronica Khongwir and Maneesh Kumar; Editing by Hari Kishan, Ross Finley)

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India's economy likely slowed to annual 6.2% in July-Sept - Financial Post
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