US Economic News Summary of the week ending January 6, 2023

Market Instability Watch:

January 6 – Bloomberg (Yueqi Yang and Hannah Levitt): “When US banks fell like dominoes during the Great Depression, the cause was often a classic run: Depositors withdrew cash en masse amid fears that lenders were amassing huge losses on bad loans and investments. The cryptocurrency era just put a new twist on that — with the depositors running into trouble first. Silvergate Capital Corp., a California lender that offers digital-asset ventures a place to park their cash, jolted shareholders… with the revelation that it had recently survived an $8.1 billion drawdown on deposits. That’s roughly 70%, even more severe than runs seen in the Depression… ‘This is unprecedented, it’s very unusual,’ said Karen Petrou, a managing partner at Federal Financial Analytics… ‘Because they were so dependent on crypto funding, they were vulnerable for a run. Given the crypto market has been unstable, they got it.’”

Crypto Bubble Collapse Watch:

January 5 – Bloomberg (Yueqi Yang): “Silvergate Capital Corp. made one of the US banking world’s biggest bets on crypto. Now it’s reeling from a run on deposits and a massive loss, intensifying fears the collapse of crypto exchange FTX may seep elsewhere into the financial system. ‘The worst-case scenario seems to have come to pass’ for Silvergate, Jared Shaw, an analyst at Wells Fargo & Co., said… after the company’s announcement. Silvergate shares cratered a record 49%.”

January 5 – Reuters (Manya Saini, Niket Nishant and Hannah Lang): “Silvergate Capital Corp reported a sharp drop in fourth-quarter crypto-related deposits on Thursday as investors spooked by the collapse of FTX pulled out more than $8 billion in deposits, sending shares down more than 46%. The crypto-focused bank also said it would cut its workforce by 40%, or about 200 employees, as it tries to rein in costs amid a deepening industry downturn.”

January 2 – Reuters (Mrinmay Dey): “Cameron Winklevoss, who founded crypto exchange Gemini Trust Co with his twin brother, on Monday accused Digital Currency Group (DCG) CEO Barry Silbert of ‘bad faith stall tactics’ and asked him to commit to resolving $900 million worth of disputed customer assets by Jan. 8. Gemini has a crypto lending product called Earn in partnership with DCG's crypto firm Genesis. Genesis halted customer withdrawals in November… Winklevoss said Genesis owed more than $900 million to some 340,000 Earn investors, and that he had been trying to reach a ‘consensual resolution’ with Silbert for the past six weeks.”

Bursting Bubble and Mania Watch:

December 19 – Bloomberg (Ezra Fieser): “The deluge of venture capital that poured into late-stage Latin American tech companies in recent years has dried up, forcing some of the region’s most promising startups to fire staff, rethink growth plans and turn to bank loans for funding. After a series of record years in which investors minted more than two dozen companies valued at $1 billion or more, venture capital has all-but vanished for more-established startups. Late-stage funding plummeted 92% in the third quarter compared to the same period a year ago, according to the Association for Private Capital Investment in Latin America…”

January 5 – Bloomberg (Hema Parmar, Linly Lin and Noah Buhayar): “The pain — and then the questions — kept coming last year as prominent hedge funds took turns marking down the value of their stakes in private companies. Every time they wrote down holdings by millions, or even billions, of dollars, investors questioned whether they had gone far enough. An exclusive Bloomberg News analysis offers a partial glimpse into one of the most opaque corners of the investing world, and the findings aren’t reassuring. In many cases, hedge funds and other money managers disagree over how to value private companies… One takeaway is that even after a year of writedowns across the investment industry, more may be in store. By the end of 2022, high-flying ventures known as unicorns lost more than 40% of their value from the year’s peak… The disagreements over what companies are now worth have profound implications for the ultimate investors – from wealthy individuals to pension plans.”

January 6 – Reuters (Krystal Hu): “Funding for U.S. startups fell by one-third from their peak in 2021, according to PitchBook data released on Friday, despite record amounts of capital raised by new and existing venture funds. Private venture-backed companies raised a total of $238.3 billion last year, 31% lower than the record of $344.7 billion in 2021… Despite being a challenging year for emerging fund managers, 2022 saw $162.6 billion closed across 769 funds, setting an annual record for capital raised and marking venture capital's rise as an asset class for money managers.”

January 5 – Bloomberg (Silas Brown and Lisa Lee): “Buyout firms that contact private credit funds to gauge their interest in backing multibillion-dollar acquisitions are finding that only specific types of borrowers are guaranteed a call back these days. Lenders in the $1.4 trillion private credit market are favoring industries such as technology and health care that should hold up relatively well should the economy shrink… ‘Lenders and private equity are currently looking for industries where you can invest capital while feeling comfortable despite a challenging macro-economic outlook,’ said Mike Patterson, a governing partner at HPS Investment Partners… Private credit managers are increasingly being asked to finance big deals as investment banks pull back from lending as the market for high-yield bonds and leveraged loans remains challenging.”

January 5 – Reuters (Jeffrey Dastin and Uday Sampath Kumar): “Amazon.com Inc's layoffs will now increase to more than 18,000 roles as part of a workforce reduction it previously disclosed, Chief Executive Andy Jassy said… The layoff decisions… will largely impact the company's e-commerce and human resources organizations, he said. The cuts amount to 6% of Amazon's roughly 300,000-person corporate workforce and represent a swift turn for a retailer that recently doubled its base pay ceiling to compete more aggressively for talent.”

January 5 – Reuters (Michael S. Derby): “American technology firms dominated the number of announced job cuts in December, as some employers downsized workforces to brace for the prospect of difficult economic times looming ahead. According to the latest job cuts report from… Challenger, Gray & Christmas…, U.S.-based employers said they were cutting 43,651 jobs in the final month of 2022, down 43% from the number of cuts announced in November.”

January 5 – Bloomberg (Lindsey Rupp): “Layoffs that began in 2022 are accelerating across some technology companies. The tech industry is slashing jobs at a pace nearing the early days of the Covid-19 pandemic. In November, the most recent month for which data is available, the sector announced 52,771 cuts, for a total of 80,978 this year, according to… Challenger, Gray & Christmas Inc. It was the highest monthly total for the industry since the firm started keeping data in 2000.”

January 5 – Wall Street Journal (Jack Pitcher): “U.S. stocks have been on sale of late, but corporate insiders aren’t finding many bargains. Insider sentiment, measured by the trailing three-month average ratio of companies whose executives or directors have been buying stock versus selling, has dropped for six consecutive months, according to… InsiderSentiment.com. That is the longest such decline in almost two years… ‘The thing that stands out right now is the lack of buying even though prices have come down so much,’ said Nejat Seyhun, a finance professor at the University of Michigan who studies corporate-insider activity. ‘That’s kind of a warning.’”

January 1 – Reuters (Marc Jones): “Heavy falls in stock and bond markets over the last year have cut the combined value of the world's sovereign wealth and public pension funds for the first time ever - and to the tune of $2.2 trillion… The report on state-owned investment vehicles by industry specialist Global SWF found that the value of assets managed by sovereign wealth funds fell to $10.6 trillion from $11.5 trillion, while those of public pension funds dropped to $20.8 trillion from $22.1 trillion. Global SWF's Diego López said the main driver had been the ‘simultaneous and significant’ 10%-plus corrections suffered by major bond and stock markets, a combination that had not happened in 50 years.”

January 4 – Bloomberg (Garfield Reynolds): “The world’s pile of negative-yielding debt has vanished, as Japanese bonds finally joined global peers in offering zero or positive income. The global stock of bonds where investors received sub-zero yields peaked at $18.4 trillion in late 2020, according to Bloomberg’s Global Aggregate Index of the debt, when central banks worldwide were keeping rates at or below zero and buying bonds to ensure yields were repressed.”

Inflation Watch:

January 2 – Wall Street Journal (Gabriel T. Rubin and Sarah Chaney Cambo): “Workers who stay put in their jobs are getting their heftiest pay raises in decades, a factor putting pressure on inflation. Wages for workers who stayed at their jobs were up 5.5% in November from a year earlier, averaged over 12 months, according to the Federal Reserve Bank of Atlanta. That was up from 3.7% annual growth in January 2022 and the highest increase in 25 years of record-keeping.”

Federal Reserve Watch:

January 4 – Financial Times (Colby Smith): “Federal Reserve officials warned they would need to see ‘substantially more evidence’ of easing inflation before they are convinced that price pressures are under control as they backed fresh rate rises this year, according to an account of their most recent meeting. Minutes from the December gathering… showed the Fed intends to continue squeezing the economy to try to tackle price pressures, which they warned could ‘prove to be more persistent than anticipated’… ‘Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time,’ the minutes… said…”

January 5 – Bloomberg (Jonnelle Marte): “Federal Reserve Bank of St. Louis President James Bullard said interest rates are getting closer to a high enough level to bring down inflation, suggesting he’s comfortable with policymakers’ projections of how much further they will hike this year… ‘The policy rate is not yet in a zone that may be considered sufficiently restrictive, but it is getting closer,’ Bullard said in the slide deck. A chart in his presentation suggested that Fed officials’ median projection for where rates will end this year, at 5.1%, is in the territory of being restrictive enough to rein in inflation.”

January 4 – Yahoo Finance (Jennifer Schonberger): “Minneapolis Federal Reserve President Neel Kashkari said… he was wrong in thinking inflation would prove ‘transitory’ last year, and said more rate hikes will be appropriate this year to continue bringing down price pressures. ‘While I believe it is too soon to definitively declare that inflation has peaked, we are seeing increasing evidence that it may have,’ Kashkari wrote… ‘In my view, however, it will be appropriate to continue to raise rates at least at the next few meetings until we are confident inflation has peaked’… Kashkari sees the Fed raising rates a full percentage point from the current level of 4.25%-4.5% to a level of 5.4% and then hitting the pause button.”

January 5 – Bloomberg (Matthew Boesler and Steve Matthews): “Federal Reserve officials started the new year reiterating their concerns about US inflation being too hot, with one regional president saying interest rates should remain high well into 2024 to cool price growth. ‘I have raised my forecast over 5%,’ Federal Reserve Bank of Kansas City President Esther George said…, referring to her projection for the federal funds rate. ‘I see staying there for some time, again, until we get the signals that inflation is really convincingly starting to fall back toward our 2% goal.’”

U.S. Bubble Watch:

January 6 – Associated Press (Christopher Rugaber): “America’s employers added a solid 223,000 jobs in December… With companies continuing to add jobs across the economy, the unemployment rate fell from 3.6% to 3.5%, matching a 53-year low… Average hourly pay growth eased in December to its slowest pace in 16 months. That slowdown could reduce pressure on employers to raise prices to offset their higher labor costs. Average hourly wage growth was up 4.6% in December from 12 months earlier, compared with a 4.8% year-over-year increase in November and a recent peak of 5.6% in March.”

January 5 – CNBC (Jeff Cox): “The jobs market closed out 2022 on a high note, with companies adding far more positions than expected in December, payroll processing firm ADP reported… Private payrolls rose by 235,000 for the month, well ahead of the 153,000 Dow Jones estimate and the 127,000 initially reported for November. While the goods-producing sector increased by a relatively meager 22,000, service providers added 213,000, led by leisure and hospitality, which added 123,000 positions. Professional and business services grew by 52,000, while education and health services added 42,000.”

January 4 – Bloomberg (Reade Pickert): “US job openings remained elevated in November, highlighting how a resilient labor market is likely to keep the Federal Reserve tilted toward more restrictive policy in the months ahead. The number of available positions ticked down to 10.46 million from 10.51 million a month earlier, the… Job Openings and Labor Turnover Survey, or JOLTS, showed... The figure was higher than all estimates… The figures point to a still-tight jobs market where employers’ demand for workers far outstrips supply. Hiring, while moderating, remains solid and layoffs low. The persistent imbalance continues to put upward pressure on wages and has been highlighted by Fed Chair Jerome Powell as key to the path of inflation.”

January 5 – Reuters (Nivedita Balu): “The massive job cuts by Amazon.com Inc, one of the biggest private employers in the United States, show the wave of layoff sweeping through the tech sector could stretch into 2023 as companies rush to cut costs, analysts said… As a demand boom during the pandemic rapidly turns into bust, tech companies shed more than 150,000 workers in 2022, according to tracking site Layoffs.fyi, a number that is growing as growth in the world's biggest economies start to slow.”

January 6 – Bloomberg (Vince Golle): “A US services gauge unexpectedly shrank at the end of 2022, with steep declines in measures of business activity and orders that, if sustained, risk heightening concerns about the demand outlook. The Institute for Supply Management’s index of services dropped to 49.6 last month, the lowest since May 2020, from 56.5 in November… The figure was below all projections… The nearly 7-point decline from the prior month was the largest since the immediate aftermath of the pandemic. It may have been impacted by severe winter weather that threw holiday travel into chaos and caused widespread power outages.”

January 4 – Wall Street Journal (Justin Lahart): “A lot of businesses are feeling morose about where the economy is heading. And yet they still are looking to hire more workers… There were a seasonally adjusted 1.4 million layoffs and discharges in November. That was about even with October and up just a bit from November 2021’s 1.3 million. In the year before the pandemic, when the job market was plenty strong, there was an average of about 1.8 million layoffs a month.”

January 5 – Reuters (Aatrayee Chatterjee and Granth Vanaik): “U.S. online spending during the 2022 holiday season rose by a better-than-expected 3.5%, a report by Adobe Analytics showed, as retailers used hefty discounts to lure inflation-weary consumers into spending… Shoppers spent a record $211.7 billion online over the holiday season, which typically starts in November and ends in December, compared with an earlier forecast of $209.7 billion…”

January 4 – Bloomberg (Reade Pickert): “US manufacturing activity contracted for a second month in December, capping the steepest annual slide in the key factory gauge since 2008 and helping to further tame price pressures. The Institute for Supply Management’s gauge of factory activity fell to 48.4 last month, the lowest level since May 2020 and down from 49 in November…”

January 4 – Wall Street Journal (Sean McLain): “The U.S. auto industry posted its worst sales year in more than a decade in 2022 as supply-chain snarls and poorly stocked dealerships dented results... With few exceptions, auto makers… reported sales declines for the year. General Motors Co. was one of the few to report an increase, after recovering from factory shutdowns that were caused by parts shortages. The Detroit auto maker retook its U.S. sales crown from Toyota Motor Corp. after losing the top spot in 2021 for the first time in decades…”

January 5 – Bloomberg (Paige Smith): “The percentage of US consumers paying at least $1,000 a month for their cars soared to a record, adding to concerns that borrowers may be getting in over their heads. Almost 16% of consumers who financed a new car in the fourth quarter have monthly payments reaching that level, up from 10.5% a year earlier, according to… Edmunds.com... The share of auto owners paying that much was just 6.7% in the fourth quarter of 2020.”

January 1 – Wall Street Journal (Nora Eckert): “The U.S. auto industry is entering one of its biggest factory-building booms in years, a surge of spending largely driven by the shift to electric vehicles and new federal subsidies aimed at boosting U.S. battery manufacturing. Through November, about $33 billion in new auto-factory investment has been pledged in the U.S., including money for the construction of new assembly plants and battery-making facilities… The 11-month total adds to the $37 billion in new auto-factory spending committed in 2021… The annual figure is up from $9 billion in 2017 and a more than eightfold increase from two decades ago, the center found.”

January 1 – New York Times (Don Clark and Ana Swanson): “In September, the chip giant Intel gathered officials at a patch of land near Columbus, Ohio, where it pledged to invest at least $20 billion in two new factories to make semiconductors. A month later, Micron Technology celebrated a new manufacturing site near Syracuse, N.Y., where the chip company expected to spend $20 billion by the end of the decade and eventually perhaps five times that. And in December, Taiwan Semiconductor Manufacturing Company hosted a shindig in Phoenix, where it plans to triple its investment to $40 billion and build a second new factory to create advanced chips. The pledges are part of an enormous ramp-up in U.S. chip-making plans over the past 18 months, the scale of which has been likened to Cold War-era investments in the space race.”

January 4 – CNBC (Diana Olick): “After a brief reprieve in the first half of December, mortgage interest rates shot up again to end the year, weighing on mortgage demand… Mortgage applications to purchase a home dove 12.2% from two weeks earlier and were down 42% year over year. They ended the year at the lowest level since 1996.”

Fixed-Income Watch:

January 2 – Financial Times (Harriet Clarfelt): “The biggest buyers of US junk loans are expected to shrink their exposure to the $1.4tn market in 2023, as the Federal Reserve’s campaign of interest rate rises sparks rating downgrades and defaults. Collateralised loan obligation vehicles own roughly two-thirds of America’s low-grade corporate loans — but may be forced to reduce their exposure because of credit downgrades, which could unsettle the markets… CLOs, which package up such loans into various risk categories before selling the slices on to investors, have performed well during tough economic times, but analysts say mechanisms designed to protect investors holding higher-quality tranches could reduce the vehicles’ appetite for loans to risky, highly-indebted borrowers… US CLO issuance ballooned during the depths of the pandemic, reaching an unprecedented $183bn in 2021… Even as the Fed tightened monetary policy last year to tackle inflation and other parts of the global fixed-income market stuttered, CLOs raised a further $126bn — the third-largest annual figure on record…”

Environmental Instability Watch:

January 3 – Bloomberg (Josh Saul and Naureen S. Malik): “The unprecedented strain on the electrical grid during December’s frigid storm was threatening to trigger cascading blackouts across the Eastern US when Duke Energy Corp. called for rolling outages in North Carolina to stabilize the system, company officials said… Duke cut power to about 500,000 homes and businesses the day before Christmas as frigid weather sent demand surging as much as 10% above forecast while instruments froze at coal and natural gas-fired plants, forcing them to cut output. The strain in North Carolina threatened to throw the flow of power off balance on the entire Eastern Interconnection grid, stretching from Maine to Oklahoma…”

Leveraged Speculation Watch:

January 5 – Bloomberg (Katherine Doherty and Katherine Burton): “Citadel Securities raked in a record $7.5 billion in 2022, capitalizing on last year’s volatility and raising its presence as one of the largest trading units in the US. Revenue for the market-making arm of billionaire Ken Griffin’s Citadel empire jumped 7.1% from the previous year’s $7 billion… Griffin’s flagship hedge fund — operated separately by Citadel’s investment management business — also posted big gains last year, jumping 38% thanks to strong performance in everything from equities to commodities…”