Unadorned Notes: October 28-30, 2024
U.S. GDP Growth Slows Slightly; Consumer Confidence Hits 9-Month High; China’s Industrial Profits Plummet Sharply; Bitcoin Surges Amid Gold Competition; Loopholes in U.S. Export Controls on China
Economics and Finance
U.S. GDP Growth Slows Slightly: The U.S. economy grew at an annualized rate of 2.8% in Q3 2024, below the 3.1% expected by economists. Strong consumer spending, which rose 3.7%, was the primary driver of growth, contributing nearly 2.5 percentage points to GDP. Federal government spending also surged, up 9.7%, largely due to a 14.9% increase in defense outlays. Imports rose by 11.2%, offsetting some gains, while exports increased by 8.9%. Inflation moderated, with the personal consumption expenditures index rising 1.5%, below the Federal Reserve’s 2% target.1
Job Openings Hit 3-Year Low: U.S. job openings fell by 418,000 to 7.443 million in September 2024, marking the lowest level since January 2021, according to the Bureau of Labor Statistics. August 2024 job openings were also revised down to 7.861 million. Hiring increased slightly to 5.558 million, while layoffs rose by 165,000 to 1.833 million, indicating potential labor market softening. Economists expect October 2024 payroll growth to slow significantly, with forecasts suggesting an increase of only 115,000 jobs. The Federal Reserve is anticipated to cut interest rates by another 25 basis points at its next meeting.2
U.S. House Prices Continue Rising: U.S. single-family home prices rose 0.3% in August 2024, following a 0.2% increase in July 2024, as reported by the Federal Housing Finance Agency. Year-over-year, home prices were up 4.2% despite high mortgage rates and tight inventory. The average 30-year mortgage rate increased to 6.54%, limiting new listings as many homeowners retain lower-rate mortgages. Price gains were observed in most regions, with the largest annual increases in the East North Central and New England areas. Persistently high prices and elevated rates continue to challenge housing affordability.3
Consumer Confidence Hits 9-Month High: U.S. consumer confidence rose sharply in October 2024, reaching a nine-month high, as reported by the Conference Board. The confidence index increased to 108.7 from a revised 99.2 in September 2024, surpassing economists’ expectations. Improved perceptions of the labor market contributed to the rise, with 35.1% of consumers describing jobs as “plentiful” and fewer considering them “hard to get”. This boost marks the strongest monthly gain since March 2021. Elevated confidence suggests continued strength in consumer spending, a key driver of economic activity.4
Fed Rate Cuts Boost Business Optimism: Following the Federal Reserve’s recent rate cuts, small businesses across the U.S. are expressing renewed optimism and planning expansions. Brian Brown, a landscaper in Lake Tahoe, expects reduced borrowing costs will allow him to refinance and support future growth. Banks have also reported increased loan demand expectations, with the Dallas Fed’s survey showing the highest optimism since 2022. Franchisee Tracy Thomas and others anticipate that lower rates will facilitate faster expansion and capital management. Fed policymakers are projected to continue rate reductions to further ease inflation pressures and support the labor market.5
Treasury Prepares for 2025 Debt Needs: The U.S. Treasury Department is expected to maintain current debt auction sizes, following significant increases through early 2024, with limited changes anticipated before the November 5, 2024, elections. On Monday, it will release borrowing estimates for the next two quarters, followed by specific auction details on Wednesday. Analysts predict stable issuance levels, potentially adjusted by increasing Treasury Inflation-Protected Securities (TIPS) and short-term Treasury bills. Any post-election shifts in fiscal policy could lead to changes in borrowing needs for 2025. Traders will monitor updates on the Treasury buyback program and any discussion of the debt ceiling’s impact.6
LDP Loss Raises BOJ Policy Uncertainty: Japan’s ruling Liberal Democratic Party (LDP) lost its parliamentary majority, potentially complicating fiscal policy and central bank decisions. Prime Minister Shigeru Ishiba may need support from smaller opposition parties, though they oppose a formal coalition. Analysts predict pressure for increased fiscal spending, with proposals potentially exceeding 20 trillion yen. Political instability may hinder the Bank of Japan’s plans to gradually raise interest rates, especially amid yen depreciation concerns. The BOJ could face pressure to intervene if the yen weakens further, potentially due to external factors like the upcoming U.S. election.7
China’s Industrial Profits Plummet Sharply: China’s industrial profits fell 27.1% year-on-year in September 2024, marking the steepest decline since March 2020, according to the National Bureau of Statistics. The drop follows a 17.8% decrease in August 2024, underscoring challenges from weak demand, deflationary pressures, and a property crisis. Authorities have recently intensified efforts to stimulate growth, with new fiscal measures expected after next month’s National People’s Congress meeting. In the first nine months of 2024, industrial profits declined 3.5% compared to the previous year. Economists suggest demand-side policies are needed to counter the economic slowdown and support struggling sectors like upstream materials and automobiles.8
Bitcoin Surges Amid Gold Competition: Bitcoin recently surpassed $71,000, nearing its all-time high, while gold trades close to a record $2,760, highlighting competition between the assets. Peter Schiff, a long-time gold advocate, noted Bitcoin’s resurgence, suggesting it has diverted attention from gold. Sean Ono Lennon expressed ironic support for Schiff, despite being an active participant in the crypto space. BlackRock CEO Larry Fink remarked that Bitcoin “digitizes” gold, supporting its perception as “digital gold”. With strong investor sentiment, Bitcoin appears poised to test new record levels.9
U.S. Politics, Geoeconomics, and Geopolitics
High Costs Drive Voter Frustration: Economic concerns, particularly high costs of food and housing, are driving some voters, like Michigan’s Tiesha Blackwell, to shift support from Democrats to Republicans in 2024. Despite a strong post-COVID recovery, many Americans feel strained by inflation and rising living costs. Vice President Kamala Harris and former President Donald Trump have proposed divergent economic policies, with Harris focusing on price gouging laws and child tax credits, while Trump advocates for tariffs and tax cuts. Polls indicate Trump has an edge on economic issues, though economists warn his policies could further raise consumer prices. In battleground states like Michigan, where cost of living concerns persist, these economic issues may prove decisive.10
Democrats’ Actions Fuel Trump Revival: Many conflicted voters view Donald Trump as a risk but feel frustrated by the Democrats’ perceived exploitation of this unease to secure re-election. Critics argue that Democrats have overreached, interpreting Joe Biden’s narrow 2020 win as a mandate for sweeping leftist policies, from border policy to social issues, which they see as divisive. The Biden administration’s handling of the Afghanistan withdrawal, open-border policies, and perceived lack of transparency about Biden’s health have alienated some voters. The extensive legal actions against Trump have also been seen as excessive, fueling sympathy for him and mistrust in the judicial process. This dissatisfaction has left some voters willing to consider a Trump comeback as a rebuke to Democratic overreach, per The Wall Street Journal’s Gerard Baker.11
Trump 2.0 Agenda: Donald Trump’s proposed policies for a second term include a 10% tariff on all imports and a massive deportation initiative aimed at undocumented migrants. He has pledged to overhaul the federal bureaucracy, targeting career officials and installing loyalists, and would introduce a civil service test under his control. Trump also plans to increase fossil fuel production, ease federal regulations, and reduce corporate tax rates to incentivize domestic manufacturing. On foreign policy, he promises to reevaluate U.S. support for Ukraine and take a tougher stance on China. His education goals include cutting diversity programs in universities and promoting school choice with public funding for private education.12
Loopholes in U.S. Export Controls on China: Current U.S. export controls have slowed China’s semiconductor progress, but Chinese firms, especially Huawei, exploit loopholes to bypass restrictions. Huawei has rapidly built a state-backed fab network, advancing in AI and semiconductor capabilities, raising national security concerns. U.S. semiconductor equipment suppliers have seen strong financial performance under restrictions, indicating further controls would not harm their profitability. Proposed reforms include lowering the threshold for U.S.-origin technology in export restrictions and enhancing end-use checks. Coordinated international controls are essential to prevent China from gaining a technological edge in AI and semiconductors, per
.13U.S. Sanctions Target Russian Suppliers: The U.S. imposed sanctions on 398 firms across Russia, India, China, and other nations for allegedly aiding Russia’s war effort and evading sanctions. The sanctions, led by the Treasury and State Departments, target 274 companies supplying advanced technology to Russia and entities supporting its defense industry. China-based companies and Belarusian entities linked to Russia’s military were also sanctioned. This latest action reflects ongoing U.S. efforts to hinder Russia’s military capabilities, though experts question the overall impact of sanctions as Russia’s economy remains resilient. The U.S. and G7 allies are also exploring ways to use frozen Russian assets to support Ukraine.14
North Korean Defectors Seek Ukraine Fight: Nearly 200 North Korean defectors with military experience have expressed willingness to join Ukraine’s fight against Russia, citing their deep understanding of North Korean military culture. This comes as Ukraine and South Korean intelligence report that North Korea has deployed 10,000–12,000 soldiers to support Russia, with some already near the frontlines in Kursk. The Pentagon and NATO have condemned the deployment, viewing it as a significant escalation in the Ukraine conflict. Ukrainian authorities have appealed to North Korean soldiers to avoid fighting, urging them not to “die senselessly on foreign soil”. Tensions on the Korean peninsula have worsened as North Korea strengthens ties with Russia, raising concerns over potential military alliance.15
