Place of the Week: Huntsville, Alabama

Econ Weekly (Dec. 6, 2021)

photo courtesy of Marshall Space Flight Center

Issue 47: December 6, 2021

Inside this Issue:

• Translation on Job Creation? Forget Conclusions, Just More Confusions

• “Transitory” to the Cemetery: Fed Parts Ways with Its Favorite Phrase

• Another Covid Curveball: Will Omicron Be as Bad for GDP as Delta Was?

• Yellen Yelling Again at Lawmakers: Pay the Bills or Face Awful Ills

• What’s Up, Dude? Not Crude. It's Down. A Lot.

• Concern Over Turnover: Amazon’s Latest Labor Pains

• Peach Price Pressures: Atlanta, the Inflation Capital of America?

• Razorback Rising: Is Northwest Arkansas the Next Boom City?

• Heading for the Heavens: Space Economy Blasting Off

• Blockchain Blackrock? Asset Management in the Land of Crypto

• Haunted Housing: What the Fed Said in the Mid-2000s Bubble

• And this Week’s Featured Place: Huntsville, Alabama, Rising Rocket

Quote of the Week

“I cannot overstate how critical it is that Congress address this issue. America must pay its bills on time and in full. If we don’t, we will eviscerate our current recovery.”

-Treasury Secretary Janet Yellen, urging Congress to increase the debt ceiling

Market QuickLook

The Latest

The latest jobs report is in, and once again, it’s delivering mixed and inconclusive signals. The pessimist’s takeaway: Just 210,000 new jobs were created in November, compared to 546,000 in October and 379,000 in September. A more optimistic view? That the unemployment rate fell (to 4.2%), the participation rate rose (to 61.8%) and the underwhelming new jobs figure… well, it probably isn’t all that meaningful. After all, it will likely be revised upward, based on recent patterns. And a separate Labor Department survey of households (the 210k number is from a survey of businesses) suggested far greater gains.

In any case, the jobs figure is just one data point, and it came after the Fed’s Jay Powell had already moved markets earlier in the week. It’s time, he told Congress, to retire the word “transitory.” And if that wasn’t enough to convey heightened concern about inflation, Powell also raised the prospect of quickening the pace of its bond tapering. No signaling though, on the logical next step, which would be raising interest rates to cool demand. That’s the great question on Wall Street right now: How long before liftoff?

Powell, by the way, was asked by one Senator (John Ossoff of Georgia) what kept him up most at night regarding risks to the financial system. His answer: A cyber-attack. For Treasury chief Janet Yellen, testifying alongside Powell, the nightmares are of not an online Pearl Harbor but a U.S. debt default. In October, remember, Congress agreed to raise the debt limit to avoid default, but only until December. Alas, here we are.

But where are markets? In a state of rather unusual bearishness—unusual for 2021, anyway. Stocks fell again, led by declines in Big Tech. Crypto prices tanked. And oil prices continued their tumble from lofty heights. Other commodities have seen big declines as well, perhaps letting some air out of the inflation balloon. Splash247.com, a website about maritime shipping, says container freight rates, which peaked in September, were by mid-November down 17% from that high point. Bond prices, meanwhile, seem to always go nowhere but up, rising again last week in tandem with falling yields. In a textbook world, bond prices should drop with greater likelihood of a Fed rate hike. Is the market influenced more by fear of recession? Or do bond markets suggest nothing much at all anymore, influenced as they are these days by still-ravenous Fed buying. Which of course raises the question: What happens when the Fed stops buying? The answer will be known before long.

Before moving on, let’s make sure to keep perspective: The stock market (the S&P 500) is still up 23% y/y. And oil prices are up 43%. That still feels a bit bubbly for comfort to some, especially on the stock side. The latest Omicron virus variant, to be sure, represents a new threat, reminiscent of the Delta threat which turned out to be highly damaging to the economy.

The economy for now, as the latest Fed Beige Book suggests, is growing at a “modest to moderate pace,” enabling what should be about 5% GDP growth this year, following 3.4% contraction in 2020. The report, however, is rife with tales of labor woe and pricing pain across the U.S. In one anecdote, the San Fran Fed said the inability to hire teachers has forced some schools to close in the Pacific Northwest. It added that annual percent increases in pay rates reportedly reached double digits in such sectors as hospitality, construction and professional services. New York City is seeing subway ridership up steadily but still about 40% below comparable 2019 levels. Minneapolis said a quarter of surveyed firms in its district raised wages by 5% or more over the past year. It also cited one contact (working largely with immigrants) who said workers in customer-facing jobs were “no longer willing to deal with rude customers and difficult schedules.” Many are taking jobs as warehouse workers instead. Others are launching new microbusinesses such as food trucks and cleaning services.

Demand continues to look strong as Christmas approaches, although Apple did mention some softness in iPhone sales, according to Bloomberg. CNBC says Amazon is on pace to soon surpass FedEx and UPS as America’s largest delivery service. Twitter has a new chief. Its old chief’s new company has a new name (Square is now Block). The Biden Administration’s distaste for mergers was again visible—the FTC sued to stop Nvidia’s $40b takeover of Britain’s ARM; it also opposes a retail merger involving Bass Pro Shops. Meta, meanwhile, (or Facebook if you still prefer) has U.K. regulatory problems with its Giphy deal.

In the fast-developing space economy, NASA awarded $416m to three companies—Blue Origin (led by Jeff Bezos), Nanoracks and Northrop Grumman. Their job: to develop designs for space stations and other commercial space destinations, advancing efforts to “enable a robust, American-led commercial economy in low-Earth orbit.” There’s a lot in this week’s issue about the space economy, including one of its unlikely epicenters: the city of Huntsville, Alabama.

Also in this week’s issue is a view from inside the Fed during mid-2005, when bubble-like housing tendencies were becoming more and more obvious. There’s more from the crypto world as well, in advance of a major Congressional hearing on the topic this week. More specifically, the House Financial Services Committee, chaired by California’s Maxine Waters, will on Wednesday conduct a discussion about “Digital Assets and the Future of Finance.”

Places:

• Huntsville, Alabama: Alabama, since becoming a state in 1819, hasn’t exactly been a champion of Hamiltonian federal power. Yet federal dollars, deals and development are directly responsible for the prosperity of its second largest metro. Huntsville, in the north of the state near Tennessee’s border, in fact one of the nation’s most dynamic economies, with a population that grew 13% during the 2010s—growth was just 3% in Birmingham, while Mobile and Montgomery lost Huntsville’s unemployment rate today? Just 2%. The city’s early economic life mirrored that of others in the deep South: Cotton trading, boosted later by railroads and textile mills, the latter fleeing higher labor costs in the North. As late as the Second World War, much of the South remained in extreme poverty. But the war was a major inflection point for the region’s economic development, nowhere more so than in Huntsville. Then and there, the army established a facility for chemical munitions production and missile research. After the war, Germany’s leading rocket and missile engineers were brought to Huntsville, helping the U.S. in its Cold War arms race with the Soviet Union. The city also played a leading role in the mission to land a man on the moon. Defense contractors from the private sector… (TO CONTINUE READING, VISIT www.econweekly.biz)

Looking back

• 2005: Econ Weekly’s Fed meeting lookbacks continue, turning now to June 2005. In previous weeks, we looked at the inflation scourge of 1979, the defense spending boom of 1985, the recession of 1990, the tech boom of 1997, the aftermath of the tech bubble bursting in 2000 and—last week—the immediate response to the 9/11 attacks. By 2005, the economy was back on track, growing at a nearly 4% annual pace without any major inflation worries. But one thing about the economy made many at the Fed rather uncomfortable. At its late June meeting that year, the FOMC invited several staff economists to deliver presentations about the housing market, which was booming wildly, perhaps too wildly. Single-family starts had averaged more than 1.65m units (at an annual rate) in April and May, following a “sizzling” first quarter pace. Roughly 4% of borrowers, one… (TO CONTINUE READING, VISIT www.econweekly.biz)

Looking ahead

• Cryptoeconomy: Asset prices go up. Asset prices go down. But one thing that keeps rising is the flood of money and talent pouring into the crypto space. It’s all based on this invention called the blockchain, which can establish verifiable ownership on… (TO CONTINUE READING, VISIT www.econweekly.biz)

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