Unadorned Notes: November 27-30, 2024
Inflation Risks Persist Amid Growth; Jobless Claims Signal Labor Resilience; AI Revolutionizes U.S. Oil Industry; Shanghai’s Financial Ambitions Falter; Sheriffs Back Trump Deportation Plans
Economics, Finance, and Business
Inflation Risks Persist Amid Growth: The U.S. economy showed resilience at an annualized rate of 2.8% in Q3 2024, with consumer spending rising 0.4% in October 2024 and GDP growth projected at 2.7% for Q4 2024. Inflation remained above the Federal Reserve’s 2% target, with core PCE inflation increasing to 2.8% year-over-year. Proposed tariffs by the incoming Trump administration are expected to elevate inflation, complicating monetary policy. Labor market conditions remained stable, though long-term unemployment claims ticked up slightly. Business investment softened, signaling potential headwinds for economic momentum.1
Jobless Claims Signal Labor Resilience: U.S. initial unemployment claims fell by 2,000 to 213,000 for the week ending November 23, 2024, reflecting a stable labor market despite prolonged joblessness for some. Continuing claims rose to 1.907 million, indicating challenges for many in finding new employment. The unemployment rate has remained steady at 4.1% for two months, with November 2024’s data crucial for Federal Reserve decisions. Fed minutes revealed divided opinions on further rate cuts amid slowing disinflation and stable labor trends. The central bank is weighing another potential rate cut in December 2024 after reducing rates earlier this month.2
U.S. Business Applications Surge: The U.S. recorded nearly 5.5 million new business applications in 2023, up from 5.1 million in 2022 and 3.5 million in 2018, reflecting growing entrepreneurial activity. Wyoming, Delaware, and Florida had the highest rates of applications, driven by favorable legal and tax conditions. Approximately 1.8 million of these businesses are expected to hire workers, highlighting their potential economic impact. Consumer interest in supporting small businesses remains robust, with 85% planning to shop locally during the holiday season. The surge in applications signals optimism about small business opportunities despite broader economic challenges.3
Walmart Scales Back DEI Policies: Walmart announced significant reductions to its diversity, equity, and inclusion (DEI) initiatives, including closing its Racial Equity Center and discontinuing so-called racial equity training. The company will also revise supplier diversity programs, cease using DEI-related terms, and remove controversial items marketed to children. This shift follows pressure from Robby Starbuck, a prominent anti-DEI advocate, who argues these programs are divisive and unnecessary. Academic studies have questioned the business case for DEI, with some finding no significant link between diversity and financial performance. Walmart’s move signals a growing trend of corporations reassessing DEI policies amid evolving cultural and political pressures.4
AI Revolutionizes U.S. Oil Industry: Oil companies are leveraging AI to boost efficiency and production, particularly in the Permian Basin, which now produces half of U.S. oil. Innovations like automated drilling and predictive subsurface mapping have reduced costs and tripled production in the region over the past decade. AI spending in the oil sector reached $3.1 billion in 2023, with projections of rapid growth. These advancements have positioned the U.S. as the world’s top oil producer, significantly altering global energy markets. Offshore drilling is also benefiting from AI, cutting seismic imaging analysis times from 18 months to just 18 days.5
TSMC Eyes Overseas 2nm Production: TSMC plans to begin mass production of its 2nm chips in 2025, following the successful launch of its 3nm process. Chairman Wu Chengwen stated that overseas production of 2nm chips could be considered after the transition to more advanced processes. Concerns about the industry’s hollowing out due to overseas expansion were addressed with assurances of maintaining Taiwan’s leadership in semiconductor technology. Taiwan’s government emphasized that the most advanced manufacturing and R&D operations would remain based in Taiwan. TSMC’s move reflects its global growth strategy while safeguarding its domestic technological edge.6
Shanghai’s Financial Ambitions Falter: Shanghai’s bid to become a global financial hub has stalled, with declining foreign investment and no Western bank participation in IPOs this year. Stringent capital controls, geopolitical tensions, and pandemic-induced restrictions have dampened its international appeal. Foreign asset managers face limited returns, while the city’s expat population has plummeted, further weakening global ties. Despite some recent financial reforms, Shanghai’s focus has shifted toward domestic capital formation under Beijing’s tighter control. Optimists believe the city retains the potential for revival, citing its history of resilience and adaptability.7
U.S. Politics, Policies, and Geopolitics
Trump Dropped from Federal Cases: The U.S. Court of Appeals for the Eleventh Circuit dismissed Donald Trump from the classified documents case after special counsel Jack Smith moved to drop charges due to DOJ policy barring prosecution of a sitting president. Trump had previously pleaded not guilty to 37 charges related to classified material and alleged obstruction at Mar-a-Lago. Judge Aileen Cannon dismissed the case in July 2024, citing Smith’s unconstitutional appointment as special counsel, a ruling Smith continues to appeal regarding Trump’s co-defendants. Smith also dropped his election interference case against Trump, citing presidential immunity. This marks the conclusion of federal prosecutions against Trump as a defendant.8
Sheriffs Back Trump Deportation Plans: With Donald Trump’s return to the presidency, sheriffs like Frederick County’s Chuck Jenkins are preparing to expand local enforcement of immigration laws. The administration plans to revive the 287(g) program, empowering sheriffs to act as ICE deputies, and penalize sanctuary cities through funding cuts. Critics argue such policies harm community trust and economic stability, while supporters believe they deter crime and illegal immigration. Immigration enforcement under Trump is expected to intensify, focusing on illegal migrants with criminal histories. However, fears of mass deportations have already caused anxiety among immigrant communities nationwide.9
Trump, Trudeau Discuss Tariff Threats: Canadian Prime Minister Justin Trudeau met U.S. President-elect Donald Trump in Florida to address proposed 25% tariffs on Canadian goods. The leaders discussed issues including the fentanyl crisis, trade deficits, and fair trade agreements, with Trudeau committing to collaboration on combating drug trafficking. Trump emphasized the tariffs as a means to curb illegal immigration and drug flows, though critics, including President Joe Biden, labeled the approach counterproductive. Canada, heavily reliant on U.S. trade, could see significant impacts on exports like vehicles and wood if tariffs proceed. The meeting highlights potential tensions in U.S.-Canada relations under the incoming Trump administration.10
Lagarde Urges EU-Trump Cooperation: ECB President Christine Lagarde warned that a trade war with the U.S. under President-elect Donald Trump could harm global growth and urged Europe to negotiate rather than retaliate. She proposed increasing EU purchases of U.S. goods like LNG and defense equipment to defuse tensions over proposed tariffs. Lagarde emphasized the need for Europe to strengthen its competitiveness and accelerate economic reforms, including the Capital Markets Union. Trump’s tariff threats, especially targeting China, could also lead to economic challenges for Europe from increased Chinese exports.11