Confounding and confusing events 5/9/22
It appears that China may be heeding the warnings about Russia, as US intelligence has not detected any overt Chinese military nor economic support moving to the Russians. The relationship with China is already tense, and it appears that Mr. Biden, at least on a temporary basis has halted the Chinese enthusiasm for supporting the Russians. Let’s hope it sticks.
Staying with China, it appears that the zero-tolerance approach to COVID-19 is creating an economic slowdown. This is evidenced by several factors. New graduates are struggling to find jobs, purchasing manager indexes show contractions in factory and service sector activity falling to their lowest level since 2020, cement production is less than 40% of full capacity, shipments of smart phones have dropped 18% from a year earlier, and excavator sales within China are down 61%. These snippets indicate that there is some trouble brewing in their economy. One always has to remember that the Chinese, because it is a dictatorship have more tools to work with in terms of stabilizing their economy.
It appears that COVID-19 cases and hospitalizations in the United States are rising, but the most severe outcomes haven’t yet appeared. It is clear, at least for now, that the increase in infections is not resulting in a surge of severe illnesses even as risks remain. The level of infections in the northeast is the highest in the country, and there is evidence of the virus in waste water. It also appears that there may be several variants in action simultaneously which may make it hard to detect which of the variants you may be at risk for. Will this never end? Do we need to go back to social distancing and wearing masks?
The New York Times is reporting that commodity imports such as steel, and the like, are running into a new supply chain issue and that is a shortage of available warehouse space in ports. If you can picture a large container ship unloading in the port of Los Angeles, and the goods or at least some portion of the goods needing to be stored in a warehouse, and you think about the volume of the goods being processed in that port, you can quickly understand how a shortage of warehouse space could develop. This creates a slowdown in the supply chain because ships will not disembark from their originating port if they recognize that at the other end, they may be sitting in the harbor fully loaded, and it will increase the cost of goods because warehouse costs are rising. Another issue in the supply chain.
The Supreme Court leak has created a furor on both sides. Republicans blaming liberals and asserting that liberals are creating this situation to put more unfounded pressure on the Court. The surprise may be, just like in election fraud, it could be a Republican. If it is, I wonder how the Republicans will enjoy eating crow. There is ample reason on both sides to leak this proposed decision, particularly as has been posited in the media, that some of the Judges were wavering and may not be willing to go along with the decision, or at least not it’s breath. Maybe the most intriguing thing that I heard was that Susan Collins has apparently said that Justices Gorsuch and Kavanaugh, if they vote as part of the majority with regard to this decision, then they lied to her. This could create some very dicey circumstances as we go forward. Could there be an impeachment in the offing for Supreme Court Justices?
The Federal Reserve, as I am sure you know, has increased interest rates by half a percentage point with an indication that further increases will occur in June and July. In addition, and really more importantly, the Fed is going to allow bonds to roll off its balance sheet, in other words, the Fed will neither purchase new bonds, nor invest the proceeds from their maturing bonds. This obviously, will have some impact on the money supply, and when you look at both the increase in interest rates and the bond activity, it becomes clear that the fed is serious about fighting inflation. We will see how it goes.
Scientists are reporting that peat bogs which exist in many parts of the world, but in particular, with the largest in Scotland and Democratic Republic of Congo, and to a lesser extent, in Ireland which made peat fires famous, particularly in stories related to the great famine. It appears that peat bogs are incredibly efficient and are a high-capacity system for storing carbon, and if the peat bogs can be brought back, if you will, to a healthy state, they will again become a mechanism for pulling carbon out of the air. This may be one of the few ways that carbon removal can occur at a reasonable cost. This will be an important process to see if it can be successful, even though some are concerned that this will become a tax dodge for the rich, and place greater economic burdens on those who live in and near peat bogs. Sound familiar in terms of native Adirondackers and the APA?
Millions of Americans retired early during the pandemic, but many are now back working. It appears that the gap in early retirement is closing with almost 1.5 million retirees reentering the US work force. Of course, given the fact that wages have gone up, and the significant number of unfilled jobs, it is not unreasonable to believe that those retirees are going back to different work environments, and potentially making more money. We also should note that obviously as inflation has taken hold, that is impacting retirees who are now operating off a fixed income and likely drawing on their retirement funds. This is another motivation for going back to work.
The US trade deficit soared to another record as the result of robust imports and a disproportionately lower level of exports. The actual increase in the trade deficit was 22.3% to $109.8 billion in March. The government also reported that this deficit sliced 3.2 percentage points from GDP in the first quarter.
Canada saw its trade surplus narrow as imports surged more than exports. Canada had been riding the wave, if you will, of an ever-increasing widening trade surplus which has now come to an end, at least temporarily. The Canadian economy, nonetheless, is in good shape and two-way auto trade also recovered which gives some indication that supply chain woes are easing, at least in that industry.
It has been reported that US employers added over 480,000 jobs in the month of April. This is certainly significant, and a good sign for the economy. It still leaves us though in the position of having well over 11 million unfilled jobs. We clearly need to find a way to fill those jobs and I suspect many of them could be filled if we had a more sensible immigration program.
Bill Owens is a former member of Congress representing the New York 21st, a partner in Stafford, Owens, Piller, Murnane, Kelleher and Trombley in Plattsburgh, NY and a Strategic Advisor at Dentons to Washington, DC.
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