Connect with us

Economy

Not Too Hot, Not Too Cold: Are We In A Goldilocks Economy? – Forbes

Published

 on


Key takeaways

  • In light of moderating economic data, some economists believe we could be headed toward a “Goldilocks economy” – or in one already
  • Goldilocks economies are “just right,” with enough growth to stave off recession without soaring inflation
  • Investors can profit in Goldilocks states as companies enjoy steady growth while consumers can afford the occasional splurge

Last week, the Labor Department released its August jobs report. The numbers, though exceeding expectations, fell short of July’s stratospheric performance with some 315,000 jobs added. At the same time, more workers entered the labor market, slightly increasing the unemployment rate from 3.5% to 3.7%.

Yet the news isn’t all good.

Inflation remains high amid Covid lockdowns in China, Europe’s brewing energy crisis, and ongoing supply chain snarls.

The housing market may be on the cusp of recession as demand (and prices) cool.

And experts say that the Fed could hike rates anywhere from 0.5% to 1% in September depending on inflation data.

Yet, these factors – alongside slowing but still-positive corporate profits – have some economists suggesting we could be enjoying a “Goldilocks economy.”

But…why?

What is a “Goldilocks economy”?

A Goldilocks economy is an economy that is experiencing “just right” levels of growth. It’s not too hot to suffer runaway inflation, but not so cold that unemployment spikes.

During Goldilocks periods, employment remains robust, growth is stable (but continuing) and the economy chugs along, rather than slams full steam ahead. In other words, consumers and businesses flourish absent huge expansions or contractions.

It’s believed that economist David Shulman first coined the phrase in his 1992 article “The Goldilocks Economy: Keeping the Bears at Bay.” At the time, the U.S. economy was “not too hot, not too cold, but just right” – ideal for all market participants.

Other Goldilocks periods include the post-dot-com bubble burst recovery between 2004-2005 and the low-inflation, 3% GDP growth period in 2017.

Common features of Goldilocks economies

Peter C. Earle, an economist at the American Institute for Economic Research, explains a Goldilocks economy as a growing economy in which “the purchasing power is stable, wages [are] rising and more goods and services [are] available. The idea here is that…we have growth but with minimum or no inflation and maximized, to the extent possible, employment.”

Still, economists tend to debate exactly what that looks like. What is agreed upon is that, somewhere, there’s a perfect balance between growth, employment and inflation that meets everyone’s needs. Key characteristics of Goldilocks economies may include:

  • Low inflation. Inflation, typically measured by the CPI or PPI, is the rate of change in a currency’s purchasing power. The Fed aims to keep inflation around 2% to promote mild growth while staving off recession.
  • Low unemployment and steady job growth. The ideal unemployment rate in a healthy economy varies, but the U.S. Federal Reserve aims for around 5%. At the same time, the labor market should grow steadily, without large expansions or contractions.
  • Low interest rates. When interest rates sit low, borrowers and businesses can afford more debt, which may stimulate moderate economic activity.
  • Steady GDP (gross domestic product) growth. GDP measures the dollar value of an economy’s total produced goods and services. Goldilocks economies are believed to have GDP growth around 2-3% annually.

Due to these factors, investors may enjoy moderate portfolio growth during Goldilocks periods. Stocks, bonds and real estate tend to appreciate steadily, leading to plenty of profits without excessive volatility.

Achieving a “just right” economy

Goldilocks economies are considered transitional periods within the larger business cycle. Modern economic theories hold that healthy capitalist economies experience repeated periods of expansion and contraction, or “boom and bust” cycles. As a result, it’s challenging to forcibly engineer the perfect economic periods.

Still, governments can facilitate certain activities that lead to stable economies, which may enter Goldilocks periods more naturally.

For example, governments can initiate spending programs that provide jobs, growth and stability, such as infrastructure projects. Short-term tax cuts can encourage spending and investment, while raising taxes allows the government to redistribute wealth and provide new growth opportunities.

Meanwhile, a government’s central bank (the Federal Reserve in the U.S.) can regulate the money supply and banking sector to facilitate a Goldilocks economy.

For instance, when inflation gets too hot, hiking interest rates can moderate lending and spending. When a recession looms near, slashing interest rates can increase these same activities.

Are we in a Goldilocks economy?

We’re living in unprecedented times. While our current state may not be exactly “ideal,” some economists believe we could be entering – or in – a Goldilocks economy.

For instance, economist James Knightley and Forbes senior contributor Jack Kelly both described August’s jobs report as a “Goldilocks report.”

And last month, Principal Global’s chief global strategist pointed to recent inflation data as a “Goldilocks state.”

Their proof is complex, but admittedly existent.

Interest rates are high, inflation is high, and yet, employment sits relatively steady. The manufacturing and service industries are holding strong while wage growth marches on.

While corporate profit growth has slowed substantially from 2021’s meteoric heights, growth does go on. Over 70% of companies reported positive earnings and EPS in Q2 of 2022, even while the tech industry flounders.

And despite ongoing supply chain issues, energy uncertainty and volatile investment markets, consumer spending remains resilient.

On the other hand, many stocks still squat in bear market territory, while GDP growth indicates we’re in a technical recession. Though corporate profits are in the black, they’re weakening and sky-high housing prices have begun to crawl back to earth. Meanwhile, both labor growth and wage hikes have shown signs of brittleness in recent reports amid increasing rate hikes.

Investing in a Goldilocks economy

Still, for investors, it might be that a Goldilocks economy includes a mild recession followed by a period of slow growth. Sure, equities sit well below their August highs (let alone their 2021 peaks), but the catastrophic crashes of spring have slowed.

But that doesn’t mean there isn’t negativity ahead.

For instance, Fed Chair Jerome Powell recently gave a dour speech in which he noted that “pain to households and businesses” may be necessary to reach the Fed’s 2% inflation target. That could mean depressed corporate growth and declining stock prices in the months ahead. (As is, his speech sparked a multi-day stock selloff, leading major stock indices to limp into September.)

But if a Goldilocks economy lies around the corner, investors may enjoy gradual growth ahead.

Rising corporate profits and strong consumer spending power could turn portfolios black. Bonds may hold their value, or even rise, in the face of declining or minimal inflation. Investors could see share price appreciation and dividends rise, while savings accounts flourish amid higher interest rates.

Of course, that depends on whether we’re in a Goldilocks economy or not. And for now, that much remains uncertain.

Too hot, too cold or just right: Where to invest in any economy

Because leading economic indicators are poised to fall while growth is poised to rise, it’s difficult for even the best economists to accurately predict what comes next. Currently, stocks remain somewhat volatile, bonds aren’t the safe haven investors wish them to be, and interest rates could very well rise again.

But that doesn’t mean investors should despair.

With Q.ai’s Artificial Intelligence at your back, we can help you prepare for economic conditions now and in the future.

Hedge your way with our Inflation Kit and Precious Metals Kit, or check out the Tech Rally
RLY
or Bitcoin Breakout. With some Kits, you can even toggle on our AI-backed Portfolio Protection to protect your gains, no matter what temperature you like your porridge.

Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $50 to your account.

Adblock test (Why?)



Source link

Continue Reading

Economy

Canada's creator economy is finally getting support after years of neglect – Financial Post

Published

 on


The creator economy is growing as more homegrown creators turn content into cash

Article content

After years of neglect, Canada’s creator economy is finally getting some recognition — and some money to go with it.

Advertisement 2

Article content

The creator economy, made up of individuals and businesses making content on social media platforms and the organizations that support them, is growing as more homegrown creators turn content, such as videos, into cash. Early stage investment funds have taken notice, and are starting to sink money into creators working with platforms that include Alphabet Inc.’s YouTube, Meta Platforms Inc.’s Instagram and ByteDance Ltd.’s TikTok. Meanwhile, resources and organizations designed to foster influencers’ growth are also cropping up, priming the industry for a new era of growth in Canada.

Article content

“Canadian influencer talent, for better or worse, has predominantly been hard to find. I don’t think there’s a lack of talent here. I think it’s the lack of opportunity,” said Matt Roberts, managing partner at ScaleUP Ventures Inc. which led a Series A financing round in 2018 for Toronto-based creator marketing company Hashtag Paid Inc., which stylizes its name as #paid.

Advertisement 3

Article content

“Up until now, it’s been very ad hoc how all these (stakeholders) work together,” he said.

Creators are contributing no small amount of money to the Canadian economy. The exact figure is hard to pin down, but in 2021, YouTube Canada alone contributed $1.1 billion to the country’s gross domestic product, an Alphabet-commissioned report by Oxford Economics said, and the number of YouTube channels earning $100,000 or more annually rose 35 per cent year over year.

Around the world, there are more than 50 million people who consider themselves creators, according to SignalFire, a venture capital firm in San Francisco. Across all major platforms, there are more than two million professional, full-time creators, while more than 45 million call themselves part-time, amateur creators. Estimates of the size of the global creator economy hover at above US$100 billion.

Advertisement 4

Article content

So far, the path to homegrown success hasn’t been easy for Canadian creators, especially for those producing content in crowded niches such as comedy. Canada’s creator ecosystem has historically been too small to support influencers’ brands, Roberts said. That has forced many fledgling influencers to pack up their gear and leave the country completely to build their careers. One popular destination is Los Angeles, California, home of Hollywood and a key market for social media stars, where you can’t turn a corner without bumping into a talent agency.

That’s exactly where Inanna Sarkis went when she embarked on her acting and social media career. In 2016, the Woodbridge, Ont., native completed her criminal justice degree, left her condo in downtown Toronto and hopped on a plane to L.A.

It was there she began her meteoric rise on social media, gaining thousands of followers by the day, which helped boost her chances of landing an acting role at auditions. Before video app Vine, owned by Twitter Inc., shut down in 2017, she amassed more than 100,000 followers. Sarkis currently has close to four million subscribers on YouTube and 15.2 million followers on Instagram.

She’s now been in movies and a handful of television series, most notably a horror flick released last year called Seance.

Advertisement 5

Article content

“L.A. was so advanced and everyone was literally already creating so much content at the time,” Sarkis said of the creator climate in 2016 via video call from her Los Angeles home. “There was already built-in infrastructure because of the acting world.”

It was through acting classes that she met some of the rising stars who went on to dominate Vine, the popular social media app of the time, known for its six-second video format. She first met Melvin Gregg — now an actor in the show Nine Perfect Strangers on Amazon.com Inc.’s Prime streaming service — who then introduced her to the likes of King Bach, DeStorm Power and Anwar Jibawi, all stars in their own right. Together they built a support system to foster each other’s creativity.

Advertisement 6

Article content

“Everyone who wanted to act or wanted to create, they all moved into one building, which was (known as) Vine Street in Los Angeles. You would go outside and there’d be Viners in every corridor creating content,” she said.

It was a far cry from what she experienced in Canada.

“When I came back to Toronto … (Vine) was just this thing that existed and (people) would watch it but never really create content for it,” Sarkis said.

The Weeknd performing in at BC Place in Vancouver on Aug. 23, 2022.
The Weeknd performing in at BC Place in Vancouver on Aug. 23, 2022. Photo by Darryl Dyck/The Canadian Press files

Another industry-watcher saw opportunity in that dearth of support for Canadian content creators. Ahmed Ismail founded Hxouse, an incubator for creators, in 2018 with his friends Abel Tesfaye, the popular R&B singer known as The Weeknd, and La Mar Taylor, The Weeknd’s creative director.

They envisioned Hxouse as a space in Toronto’s east end for aspiring creative entrepreneurs to learn through mentorship programs, networking opportunities and educational sessions about how to innovate and capitalize on opportunities in the creator economy.

Advertisement 7

Article content

Through Hxouse, creators gain access to the knowledge the three have gained from their connections to the entertainment industry. “You (get) to learn from the best of our friendships and our relationships,” Ismail said.

In September, Ismail launched CNCPT in partnership with YouTube Canada, an iteration of Hxouse’s initial offerings meant to target budding Canadian creators. YouTube Canada is funding a separate space in Hxouse’s offices for creators, new and seasoned, to shoot content and use tools such as cameras and editing software.

The two companies are still working out the kinks of what CNCPT will become, but YouTube said it will provide $100,000 grants for creative entrepreneurs to accelerate their online businesses. It also plans to fund and help create the curriculum for two annual accelerator programs beginning early next year that will be free for participants.

Advertisement 8

Article content

  1. Block closed its acquisition of Melbourne-based Afterpay Ltd., a financial technology company best known for its BNPL service, in early January.

    Block brings buy now, pay later to Square in Canada

  2. Behaviour Interactive Inc. chief executive Rémi Racine at the company's Montreal office on Feb. 7, 2020.

    Video-game maker Behaviour Interactive’s CEO sees reason for optimism amid spectre of recession

  3. Peter Ruis, the new chief executive of Indigo Books and Music, has 30 years of retail experience at major chains around the world.

    Indigo’s new CEO Peter Ruis hopes to make retailer ‘bigger and bolder’

Ismail said the collaboration with YouTube is a step in the right direction for the local creator economy.

“This is how we help build Canadian talent pipelines so more creatives and entrepreneurs realize their potential and find success and also stay in Canada while they’re still global phenomenons,” he said.

Ismail and his team are betting the creator economy will take off in Canada. The XO Crew, the name of The Weeknd’s label and associates, joined ScaleUP’s Roberts in the $18.9-million Series A round that #paid raised.

Advertisement 9

Article content

Other businesses that help manage marketing deals between brands and creators are also popping up. Adrian Capobianco, founder of BILI Inc., launched the Because I Love It platform earlier this year aimed at connecting creators and influencers with businesses seeking to make advertising deals. In June, the company raised $600,000 in its first seed round and is currently trying to raise money for a second financing round.

“The creator economy is not just an economy in the dollars and cents aspect. It really is a very robust ecosystem for creators, for influencers and for brands,” Capobianco said. “Interest from brands is growing rapidly and interest from creators continues to scale.”

• Email: bbharti@postmedia.com | Twitter:

Advertisement

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

Adblock test (Why?)



Source link

Continue Reading

Economy

Powell says economy may be entering 'new normal' after pandemic – BNN Bloomberg

Published

 on


(Bloomberg) — Federal Reserve Chair Jerome Powell said the US economy may be entering a “new normal” following disruptions from the Covid-19 pandemic.

“We continue to deal with an exceptionally unusual set of disruptions,” Powell told business and community leaders Friday at a Fed Listens event in Washington. “As policy makers we’re committed to using our tools to help see the economy through what has been a uniquely challenging period.”

In his brief welcoming marks, Powell didn’t discuss the outlook for interest rates or offer more specifics on the economic outlook. All seven of the Board’s governors were present for the panel with Philip Jefferson and Lisa Cook making public comments in their roles as Fed officials for the first time.

Fed officials heard a consistent message that shortages and scarcity were still afflicting businesses along with high labor turnover. Speaking about the small- and medium-sized companies they consult with, Cara Walton, for Harbour Results in Southfield, Michigan, said her clients “can’t find people,” and when they do find them, turnover is high.

US central bankers raised their benchmark lending rate by three quarters of a percentage points this week for a third straight time — the most aggressive pace of tightening seen since the Fed battled inflation back in the 1980s.

Powell and his colleagues are moving rapidly to reduce the highest inflation in nearly 40 years after being slow to spot the threat of broadening price pressures. Critics have slammed them for that error, although inflation has also been worsened by Russia’s invasion of Ukraine, which boosted food and energy prices around the world.

Fed Vice Chair Lael Brainard, speaking later during the event when the panel considered how families are adapting to the post-pandemic economy, noted that price pressures were hitting the most vulnerable particularly hard.

“We have seen high wage growth among the lowest income workers but looking overall, wages haven’t kept up with inflation and inflation is very high,” she said. “If we look at who bares the burden, everybody is affected by high inflation but of course it puts special burdens on lower income families as well as on people with fixed incomes.”

US consumer prices rose 8.3% in the 12 months through August and officials have vowed to cool them even if that means causing harm to the US economy and its workers. 

Officials couch this as an effort to slow excess demand and put the labor market back into “balance” — a euphemism that glosses over the fact many people could lose their jobs in the process. The labor market has so far remained strong, with unemployment at 3.7%, but policy makers this week forecast that would rise to around 4.4% next year as they continue to raise interest rates.

Fed Listens events have been held around the US since 2019 as the central bank sought public input on a review of its approach to monetary policy. That overhaul was completed in 2021 but the Fed has kept them going to maintain public engagement at a time when its actions remain front-page news.

In closing, Powell thanked the panelists for sharing their experiences of the post-pandemic economy.

“We get to spend a lot of time with data, here at the Fed. But I personally would say I need to hear narratives, I need to hear stories, about what’s really going on out there for it all to make sense,” he said. “We all learned a lot from you today.”

(Adds comment from closing remark from Powell in final paragraph.)

©2022 Bloomberg L.P.

Adblock test (Why?)



Source link

Continue Reading

Economy

Charting the Global Economy: Fed Headlines Concert of Rate Hikes – BNN Bloomberg

Published

 on


(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

The Federal Reserve, Bank of England and Sweden’s Riksbank were just a handful of central banks raising interest rates this week, underscoring the drastic tightening cycle underway as inflation grips the global economy.

Switzerland, South Africa also boosted their benchmark rates. Indonesia, Philippines and Vietnam raised borrowing costs as well following the Fed’s decision.

On the other hand, Turkey surprised with another rate cut, despite inflation running at a 24-year high and the lira trading at a record low. Officials in Hungary may deliver at least one more hike before considering ending the steepest monetary tightening cycle in the European Union. 

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

World

The Fed headlined a marathon week of interest-rate hikes, which also stretched to central bankers in Taiwan, Sweden and Mongolia. Meanwhile, Brazil and Norway indicated they may take a time-out from their tightening of monetary policy. The Bank of Japan stuck with its ultra-low rates and Governor Haruhiko Kuroda said there’s little prospect of a near-term rate boost.

The price of copper — used in everything from computer chips and toasters to power systems and air conditioners — has fallen by nearly a third since March. Still, some of the largest miners and metals traders are warning that in just a couple of years’ time, a massive shortfall will emerge for the world’s most critical metal.

US

Fed Chair Jerome Powell vowed the US central bank would crush inflation after officials raised interest rates by 75 basis points for a third straight time and signaled even more aggressive hikes ahead than investors had expected.

Sales of previously owned homes fell for the seventh straight month in August as rising mortgage rates continued to erode affordability and deal a considerable blow to the housing market. The string of declines was the longest since the housing market crashed in 2007.

More consumers are saddled with credit-card debts for longer periods of time, according to a survey, struggling to pay down amid high inflation and rising interest rates. Sixty percent of credit-card debtors say they have been in credit-card debt for at least a year, up from 50% a year ago, CreditCards.com said.

Europe

The risk of a euro-area recession has reached its highest level since July 2020 as concerns grow that a winter energy squeeze will cause a slump in economic activity. Economists polled by Bloomberg now put the probability of two straight quarters of contraction at 80% in the next 12 months, up from 60% in a previous survey.

Dockers at Liverpool, Britain’s fourth-biggest container port, voted unanimously to reject their employer’s latest pay offer — and walk off the job for two weeks in a strike that got into full swing on Tuesday. It’s the latest outbreak of the labor unrest that’s sweeping through key choke points of the world economy.

Asia

Singapore looks like an attractive location for firms wanting to exit Hong Kong, but they may find a move to the city-state hits their bottom line more than expected. With inflation soaring to the highest level in 14 years, expenses including the hiring of talent, office space and utilities are rising at a faster pace in Singapore than in its financial rival, where price increases have been more modest. 

South Korea’s early trade data showed exports are only just still growing in September in a sign of fallout from lockdowns in China and a struggling global economy. Headline exports dropped 8.7%, led by a 14% decline in shipments to China.

Emerging Markets

Emerging Asian markets are reaping the rewards of years of building up foreign-exchange reserves as they become a preferred destination for risk investors. Even as the dollar rallied, emerging Asia’s currencies are mostly faring better than traditional havens such as the yen and euro.

Mexico’s inflation remained little changed in early September, giving Banxico minimal room to reduce the pace of interest rate hikes at its meeting next week.

©2022 Bloomberg L.P.

Adblock test (Why?)



Source link

Continue Reading

Trending