Want to Understand the Weird Economy? Watch the Super Bowl.

Economy

Want to Understand the Weird Economy? Watch the Super Bowl.

Published

2 months ago

February 12, 2023

Harry Miller

What’s the best way to understand the economy? I guess you could ask around about it. Hey, you might say to a stranger, do you have a job? All right, and your weekly income? Thanks, and how much did you last pay for eggs? You could also read government reports on employment and prices, but they’re long and complicated, and they have broad error margins.

So maybe just watch the Super Bowl.

Advertising might be the art of fibbing responsibly, but marketing budgets can’t help but be honest: You either spend $7 million on a 30-second spot or you don’t. That’s why the biggest day in American sports, which is also the biggest day in American ads, is a useful measure of which firms and sectors believe themselves to be the future of the economy—and why it’s an excellent barometer for bubbles.

In 2000, 14 young “dot-com” companies bought ad time in the Super Bowl, including Pets.com, OnMoney.com, E-Stamps.com, Epidemic.com, HotJobs.com, and e1040.com. The next year, the dot-com bubble had popped, and the software industry slashed its advertising budget below the threshold of Super Bowl spots. Two decades later, almost all of the above start-ups are dead.

Last year, a cluster of crypto companies—including FTX, Coinbase, Crypto.com, and eToro—ran ads during the big game. The surge of blockchain-related spots inspired some people to call it the Crypto Bowl. But since then, crypto-asset values have crashed. Several crypto firms have gone bankrupt. And FTX, the brainchild of the disgraced crypto maven Sam Bankman-Fried, is a dumpster fire. And what do you know, the industry has “zero representation” at this year’s Super Bowl.

In general, the ad roster seems to be snapping back to the pre-COVID status quo. Anheuser-Busch leads all firms with three minutes of airtime. Other alcohol brands such as Heineken and Diageo are in. So are M&M’s and Doritos and movie studios and automakers. This year’s Super Bowl is going to feel a lot like 2019 or 2020—except with a shiny fleet of new electric vehicles.

This sharp pendulum swing to crypto and back to junk food is clearly reminiscent of the dot-com boom and bust. But it’s also reflective of what I’ve called the yo-yo nature of the pandemic economy.

The clampdown on the physical world in 2020 funneled economic activity online. Restaurants closed, and streaming accounts opened. Investors poured into speculative tech such as crypto, believing that we were accelerating into a berserk digitized future. When the pandemic receded and the economy recovered, inflation spiked, rates increased, and risky start-ups and growth stocks that thrived in a low-rate environment crashed. It’s the revenge of the touch-grass economy.

The crypto yo-yo is just one of many vertiginous ups and downs that the U.S. economy has gone through in the past few years. Gas prices went up and down; shipping costs went up and down; the price growth of durable goods (think: furniture, jewelry) went up and down; savings rates, housing investment, and tech employment went up and down.

I’m anxious about saying something as simplistic as “the U.S. economy is just a long line of price bubbles,” but that’s true enough. The crypto bubble reflected in last year’s Super Bowl really is a microcosm of the U.S. economy.

And yet. Some bubbles enjoy life after death. The dot-com companies that perished in the early 2000s fertilized the software boom that changed the world in the 2010s. Although the 2023 Super Bowl clearly represents a return to the old normal, we might look back two decades from now and see that, just as the death of Pets.com augured the rise of online shopping, the bursting of the crypto bubbles presaged the rise of a new weird kind of digital economy. I guess we have no choice but to keep watching.

Derek Thompson is a staff writer at The Atlantic and the author of the Work in Progress newsletter.

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Economy

US revises down last quarter's economic growth to 2.6% rate – ABC News

Published

9 hours ago

March 30, 2023

Harry Miller

WASHINGTON — The U.S. economy maintained its resilience from October through December despite rising interest rates, growing at a 2.6% annual pace, the government said Thursday in a slight downgrade from its previous estimate. But consumer spending, which drives most of the economy’s growth, was revised sharply down.

The government had previously estimated that the economy expanded at a 2.7% annual rate last quarter.

The rise in the gross domestic product — the economy’s total output of goods and services — for the October-December quarter was down from the 3.2% growth rate from July through September. For all of 2022, the U.S. economy expanded 2.1%, down significantly from a robust 5.9% in 2021.

The report suggested that the economy was losing momentum at the end of 2022.

Consumer spending rose at a 1% annual rate last quarter, downgraded from a 1.4% increase in the government’s previous estimate. It was the weakest quarterly gain in consumer spending since COVID-19 slammed the economy in the spring of 2020. Spending on physical goods, like appliances and furniture, which had initially surged as the economy rebounded from the pandemic recession, fell for a fourth straight quarter.

More than half of last quarter’s growth came from businesses restocking their inventories, not an indication of underlying economic strength.

Most economists say they think growth is slowing sharply in the current January-March quarter, in part because the Federal Reserve has steadily raised interest rates in its drive to curb inflation.

The resulting surge in borrowing costs has walloped the housing industry and made it more expensive for consumers and businesses to spend and invest in major purchases. As a consequence, the economy is widely expected to slide into a recession later this year.

The central bank has raised its benchmark interest rate nine times over the past year. The Fed’s policymakers are betting that they can stick a so-called soft landing — slowing growth just enough to tame inflation without tipping the world’s biggest economy into recession.

Yet as higher loan costs spread through the economy, analysts are generally skeptical that the United States can avoid a downturn. The main point of debate is whether a recession will prove mild, with only minor damage to hiring and growth, or severe, with waves of layoffs.

The financial conditions that led to the collapse of Silicon Valley Bank on March 10 and Signature Bank two days later — the second- and third-biggest bank failures in U.S. history — are also expected to slow the economy. Banks are likely to impose stricter conditions on loans, which help fuel economic growth, to conserve cash to meet withdrawals from jittery depositors.

“The economy ended 2022 with marginally less momentum,” Oren Klachkin and Ryan Sweet of Oxford Economics wrote in a research note. ”Looking ahead, the economy will face the full brunt of tighter credit conditions and Fed policy this year, and inflation is set to stay above its historical trend.”

They added: “We expect a recession to hit in the second half of 2023.”

In the meantime, the job market remains robust and has exerted upward pressure on wages, which feed into inflation. The pace of hiring is still healthy, and the unemployment rate is near a half-century low. The confidence and spending of consumers remain relatively solid.

Thursday’s report from the Commerce Department was its third and final estimate of GDP for the fourth quarter of 2022. On April 27, the department will issue its initial estimate of growth in the current first quarter. Forecasters surveyed by the data firm FactSet have estimated that growth in the January-March quarter is decelerating to a 1.4% annual rate.

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Economy

Zimbabwe Becomes Second African Nation to Cut Rates Twice in 2023 – Bloomberg

Published

10 hours ago

March 30, 2023

Harry Miller

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Zimbabwe Becomes Second African Nation to Cut Rates Twice in 2023 Bloomberg

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Economy

Anomalies abound in today's economy. Can artificial intelligence know what's going on? – The Globe and Mail

Published

11 hours ago

March 30, 2023

Harry Miller

All the fuss today is about machine learning and ChatGPT. The algorithms associated with them work well if the future is similar to the past. But what if we are at an inflection point in economic and political conditions and the future is different from the past? Will record profit margins, inflated asset prices and low inflation and interest rates of the past 30 years be an accurate reflection of the future? Is this time different?

Maybe we’re already there. Things do not seem to make sense anymore. Have you noticed that economic indicators seem to have stopped working as well and as predictably as they have in the past?

Here are some examples of the puzzling behaviour of economic statistics of recent months.

An inverted yield curve has historically been a good indicator of recessions. For several months now the yield curve has been inverted and yet the U.S. economy has been adding millions of jobs, leading to an historic low unemployment rate. Employment is booming while the economy at large is not.

Consumer sentiment, as reflected in the University of Michigan surveys, and consumer spending have tended historically to move together. But this time around, while consumer sentiment took a nosedive, consumer spending and credit card balances keep growing, reaching record highs.

Construction employment and homebuilder stocks are rising while housing permits and housing starts are falling. Normally, homebuilder stock prices would reflect the collective wisdom of financial markets about housing activity. Not this time.

Bond markets are expecting inflation to recede to the Fed’s target rate of 2 per cent. In this case, the real interest rate, implicit in the 10-year treasuries yield of between 3.5-4 per cent, is 1.5-2 per cent, which is close to historical averages. But prior to the Silicon Valley Bank debacle, some surveys pegged expected inflation to about 3 per cent going forward. Assuming the real rate is the same, this implied a 10-year treasuries yield of between 4.5-5 per cent. Either the bond market was out of line or forecasters’ inflation models do not work as well as in the past.

And oil prices are around US$70 a barrel despite the recent banking crisis and at a time when the economy is slowing down and believed to be entering a recession. Based on past experience at this point in the business cycle oil prices should be at US$50 or less. But they are not. Which begs the question: What will happen to oil prices when the economy enters a growth phase, especially with the opening of China after the COVID-19 lockups?

And the list of puzzling contradictions goes on. Having said that, someone may argue that the labour statistics, for example, are a lagging indicator and show where the economy was, not where it is going. While this is true, the magnitude of divergence between labour statistics and economic activity is so much higher than they’ve been historically. That makes one wonder what is going on.

It could be that many of these puzzling statistics are the result of “survey fatigue,” as Bloomberg Businessweek calls it. The publication reports that there has been a decline in response rates for many surveys government agencies use to collect economic data.

For example, employer response to the Current Employment Statistics survey, according to the publication, which collects payroll and wage data each month, has declined to under 45 per cent by September, 2022, from about 60 per cent at the end of 2019. The issue here is the non-response bias: that people who are not responding to the survey are systematically different from those who do, and this skews results. Could weakening trust in institutions and governments be behind the decline in response rates in recent years? If this is the case, the problem is serious and difficult to reverse or eliminate.

As a result, machine learning algorithms that need massive and good quality data about the past and assume that the future will look pretty much like the past may not work. Then what? Should we re-examine our old models? Or will human intervention always be required? Machine learning will not be able to replace investor insight and “between the lines” reading of nuanced economic numbers.

George Athanassakos is a professor of finance and holds the Ben Graham Chair in Value Investing at the Ivey Business School, University of Western Ontario.

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