Emerging Debt Deal Would Raise Limit, Cap Spending for Two Years
Republican and White House negotiators are moving closer to an agreement to raise the debt limit and cap federal spending for two years, according to people familiar with the matter, as time grows short to avert a catastrophic US default.
The two sides have narrowed differences in talks over recent days, according to the people, though the details agreed to are tentative and a final accord is still not in hand. The two sides have yet to agree on the amount of the cap.
Under the terms of the emerging agreement, defense spending would be permitted to rise 3% next year in line with President Joe Biden’s budget request. (…)
May Vehicle Sales Forecast: 15.3 million SAAR, Up Sharply YoY
The Wards forecast of 15.3 million SAAR, would be down 3.9% from last month, and up 21.6% from a year ago.
Chicago Fed: Pickup in Economic Growth in April
The CFNAI rose to +0.07 in April from -0.37 in March. All four broad categories of indicators used to construct the index increased from March, but two of the four categories made negative contributions in April.
Pending Home Sales Unchanged in April
Recession?
The Fed tightening has had its normal impact on interest sensitive sectors but the highly unusual circumstances of
- 10 years of QE;
- a worldwide pandemic;
- government money showering and a very accommodative Fed;
- the war in Ukraine;
- a very mild winter;
- the return of protectionism;
have together created an economic and financial environment that has made previous playbooks ineffective.
The auto and housing cycles are now showing signs of bottoming without having had their usual effects on employment and wages. Services are gradually but surely recovering, helped in part by rising interest rates that are boosting savers’ incomes, particularly baby boomers’ who are increasingly dining out and travelling.
Apartment Landlords Bleeding Cash Imperil $47 Billion of Loans The US multifamily buying boom threatens to go bust for owners getting squeezed by higher interest rates and other surging costs.
Higher interest rates and surging expenses are erasing their profits, even as rents are still climbing in many places. Debt payments already exceed income from multifamily buildings financed with more than $47 billion of securitized loans, according to data from Trepp.
Making matters worse, property taxes are escalating swiftly and the destructive path of climate change is sending insurance costs skyward. And building values are falling, complicating owners’ efforts to sell or refinance their way out of trouble.
“The problem is, nobody expected expenses to rise as much as they did,” said Jay Parsons, chief economist for RealPage, a rental-data tracker. “In particular, investors with floating-rate loans resetting at significantly higher rates could be challenged to cover debt payments.”
For now, the fallout has been limited. That’s because investors often purchase rate caps that protect them from the worst effects of soaring interest costs. But those policies are likely to begin burning off at a rapid rate later this year, leaving a growing number of owners vulnerable. (…)
Prices have fallen by an estimated 15% to 20% since the Fed began raising interest rates last March, said Aaron Jodka, research director for US capital markets at Colliers. (…)
America’s Travel Resurgence Is Finally Here Would-be tourists have the money and the desire to hit the road this summer. Their increased spending could even help fend off a recession.
(…) In a Gallup poll last May, 40% of respondents said they had been avoiding travel by airplane, bus, subway or train. By this February—the most recent survey—that figure had fallen to 18%. With the U.S. this month ending the national emergency and public-health emergency declaration put in place when the pandemic hit, people are probably even less worried now. (…)
Traditional hotel chains have been more upbeat, with many, including Marriott International and Hilton Worldwide Holdings, upping sales forecasts for this year when they reported first-quarter results. The unlocking of overseas demand, particularly in countries such as China and Japan that had strict Covid mitigation measures in place last summer, is helping boost global demand for hotel rooms.
That reflects increased comfort with international travel and is having a spillover effect for the U.S. as a destination: Over the three months starting last June, international arrivals to the U.S. were 33% lower than in the comparable three months of 2019, according to the National Travel and Tourism Office. The most recent available data shows that in the first two months of this year that gap had narrowed to 18%. (…)
Ships have gone from not having enough passengers a year ago to packing them to the gunwales, and in some cases cruise lines are canceling people’s trip after overselling. (…)
Through May 13 per STR (via CalculatedRisk): Occupancy: 65.1% (-2.0%)
- On roads (Advisor Perspectives)
“Travel on all roads and streets changed by +1.9% (+4.5 billion vehicle miles) for February 2023 as compared with February 2022. Travel for the month is estimated to be 233.7 billion vehicle miles.” The 12-month moving average was up month-over-month (MoM) by 0.14% and was up 0.5% year-over-year (YoY). If we factor in population growth, the 12-month MA of the civilian population-adjusted data (age 16-and-over) was up 0.1% MoM and down 0.6% YoY.
Total miles traveled, however, is one of those metrics that should be adjusted for population growth to provide the most meaningful analysis, especially if we want to understand the historical context. (…)
In fact, there’s a good case for using the Census Bureau’s mid-month estimates of total population (POPTHM) rather than civilians age 16 and over for the population adjustment. The reason is that a portion of total miles traveled is specifically to support children’s needs (daycare, schools, children’s activities, etc.) and the needs of elders who might have licenses but no longer drive. Ultimately the division of miles traveled by either population group (CNP16OV or POPTHM), while not a perfect match with drivers, is a consistent and relevant metric for evaluating economic growth.
(…) In the total population-adjusted version, the latest data point is 5.65% off-peak. This population-adjusted version puts us at a level we first achieved in 1999.
- By air: TSA checkpoint travel numbers show passenger volumes up 12.2% YoY in May (through May 24) and +7.1% from the same period in 2019.
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A Barbecue Craze in China Shows Why Its Economy Is Undercooked The journey of Zibo from industrial backwater to meat-grilling vacation hot spot reflects the bitter reality of China’s postpandemic recovery
Thousands of tourists sip cheap lager in plastic cups and grill mutton skewers in the open air every night in this hardscrabble Chinese city. The revelers snap selfies with friends, many on their first vacations since China lifted Covid-19 restrictions.
Until recently, few Chinese could place Zibo on a map. Now it is one of the country’s top vacation hot spots. Its skyrocketing popularity captures a national mood that increasingly places fun and thriftiness over lavish spending—with consequences for China’s postpandemic recovery. (…)
Even as they indulge in parties with friends, many Chinese people are scrimping on bigger-ticket items such as furniture and appliances. The dim job prospects are also leading many young people to put off getting married and having children, which in turn will likely worsen China’s falling population in the years to come.
“Young people think differently now,” said 23-year-old Shao Xiaoru, who was visiting Zibo earlier this month. “They all want to go out and have fun instead of staying at home.”
Shao perused a popular bookstore in Zibo that is shaped like a giant pagoda. Few were buying books though and only three of its nine floors were operating. The throngs of tourists instead indulged in another pastime that doesn’t cost anything—taking selfies to put on social media.
Zibo’s emergence as a selfie-worthy destination reflects the pent-up demand for fun that Chinese leaders hope can revive the world’s second-largest economy. But turning that exuberance into sustainable economic growth is more complicated. (…)
While the number of domestic trips nationwide jumped 19% versus the last prepandemic year of 2019, total tourist spending only rose 0.7%, according to the Ministry of Culture and Tourism. (…)
Europe’s Economic Engine Is Breaking Down Germany is at risk of a long, slow decline — with consequences for the whole of the EU
Decades of flawed energy policy, the demise of combustion-engine cars and a sluggish transition to new technologies are converging to pose the most fundamental threat to the nation’s prosperity since reunification. But unlike in 1990, the political class lacks the leadership to tackle structural issues gnawing at the heart of the country’s competitiveness. (…)
While Berlin has shown a knack for overcoming crises in the past, the question now is whether it can pursue a sustained strategy. The prospect looks remote. Chancellor Olaf Scholz’s make-shift coalition has reverted to petty infighting over everything from debt and spending to heat pumps and speed limits as soon as the risks of energy shortfalls eased. (…)
Economists see German growth lagging behind the rest of the region for years to come, and the International Monetary Fund estimates Germany will be the worst-performing G-7 economy this year. (…)
Germany finds itself ill-suited to sustainably serve the energy needs of its industrial base; overly dependent on old-school engineering; and lacking the political and commercial agility to pivot to faster-growing sectors. The array of structural challenges points to a cold awakening for the center of European power, which has become accustomed to uninterrupted affluence.
To its credit, industrial behemoths like Volkswagen AG, Siemens AG and Bayer AG are flanked by thousands of smaller Mittelstand companies, and the country’s conservative spending habits put it on a stronger fiscal footing than its peers to support the transformation ahead. But it has little time to waste. (…)
Affordable power is a key precondition for industrial competitiveness, and even before the end of Russian gas supplies, Germany had some of the highest electricity costs in Europe. Failure to stabilize the situation could transform a trickle of manufacturers heading elsewhere into a stampede.
Berlin is responding to concerns by seeking a cap on power prices for some energy-intensive industries like chemicals through 2030 — a plan that could cost taxpayers as much as €30 billion ($32 billion). But that would be a temporary patch, and shows Germany’s desperate situation in terms of supply. (…)
The bitter reality is that resources for generating that much clean power are limited in Germany by its relatively small coastline and lack of sun. In response, the country is looking to build a vast infrastructure to import hydrogen from the likes of Australia, Canada and Saudi Arabia — banking on technology that hasn’t been tested at this scale.
At the same time, Germany will need to speed the construction of high-voltage grids linking wind farms off the coasts in the north to power-hungry factories and cities further south. And there’s little in the way of storage to ensure the country can withstand disruptions. (…)
While small manufacturers still thrive, the number of new startups is declining in Germany — in contrast to growth seen in other developed economies, according to the OECD.
The reasons include excess bureaucracy — company registrations often taking place in paper form — and a cultural aversion to risk. Financing is also an issue. Venture-capital investment in Germany totaled $11.7 billion in 2022 compared with $234.5 billion in the US, according to DealRoom. Germany also labors under a ponderous academic system and doesn’t have a single university in the top 25 of the latest Times Higher Education ranking.
Patent data shows that Germany’s ability to stay at the forefront is fading. In 2000, the country was among the top three for world-class patents in 43 of 58 key technology categories, but in 2019, it achieved that rank in fewer than half the number of areas, according to a recent study by the Bertelsmann Stiftung.
(…) Germany’s electric cars have struggled. BYD Co. overtook VW to become the best-selling car brand in China last quarter. Key to its push was an electric model that costs around a third of VW’s ID3, but offers greater range and connectivity with third-party applications. (…)
Germany’s lack of investment is particularly acute in digital technology. Despite infrastructure that had it ranked 51st in the world for fixed-line Internet speeds, it had the fourth-lowest spending among OECD countries relative to the economy’s size. (…)
With Scholz’s messy three-way coalition racked with bickering, Germany is poised for instability, and the far-right Alternative for Germany has seized on the political vacuum, vying for second in some polls. (…)
This year, more than 1 million Germans will reach retirement age — about 320,000 more than those becoming adults. By the end of the decade, the German employment agency says the shortfall will rise to as much as 500,000 — roughly equivalent to the city of Nuremberg, adding to the strains on the economy.
In a recent report, the OECD put the scale of the challenges in stark terms: “No major industrialized economy has ever had the very basis of its competitiveness and resilience so systematically challenged by changing social, environmental and regulatory pressures.”
That in turn will ripple across the entire continent, according to Dana Allin, a professor at SAIS Europe. “The health of the German economy is crucial for the broader European economy, and the bloc’s harmony and solidarity,” he said.
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BYD Seagull EV Priced From $11,400, Gets 10,000 Orders On First Day Battery packs range from 190 miles (305 kilometers) and 251 miles (405 km),charging up to 80% in 30 minutes.
Taiwan Semiconductor Manufacturing Co., the world’s biggest contract chipmaker, is in talks to receive German government subsidies for as much as 50% of the costs to build its new semiconductor plant in the country, people familiar with the matter said. (…)
The deliberations over the Dresden plant, which could cost as much as €10 billion ($10.7 billion) to build, show how competition for semiconductor manufacturing capacity has intensified. The top end of the subsidies being discussed would put German government support for the fab on par with what Japan’s offering TSMC to build a factory there. It would also outpace the 40% maximum that most other chipmakers are getting for their plants in Europe. (…)
Less than half of the oil and gas industry’s unprecedented cash flow from the energy crisis is going back into traditional supply and only a small fraction to clean technologies
Data: International Energy Agency; Chart: Alice Feng/Axios
Full International Energy Agency’s analysis.