Economics in the News – Aug. 21-27, 2023
Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.
o China’s economy is showing signs of trouble. Growth has sputtered, dipping to an annual pace close to 3 percent. Real estate companies have overbuilt for a decade and are suffering the consequences. China’s population has become increasingly frustrated with prolonged COVID-19 lockdowns and haven’t been able to consume to their pre-pandemic levels.
The implications for the United States are expected to be minor because China plays a limited role in consumption of American-made goods. However, the implications could worsen if China’s shakiness drags down the global economy. Some economists are concerned that the Chinese government will encourage exports to foster growth. An export surge would lower prices for consumer goods, but it could counteract efforts to revitalize American manufacturing. China may lose its attractiveness worldwide. Countries that took loans from China for large infrastructure projects may look elsewhere for their funding. [The New York Times]
o NVIDIA has been one of the hottest stocks on Wall Street this year, becoming one of six worldwide companies to reach a $1 trillion market capitalization. To date, they have become the most visible winner of the artificial intelligence boom, allowing it to build a competitive moat.
According to research firm Omdia, NVIDIA accounts for more than 70 percent of AI chip sales and holds a greater advantage over its competitors in training generative AI models. The company has achieved its dominance by recognizing the AI trend early, tailoring its chips to those tasks and developing key pieces to aid in its development. NVIDIA developed a reputation for developing faster chips, and started selling computers that began to carry out AI tasks more efficiently. More recently, NVIDIA has partnered with big tech companies and invested in high-profile AI start-ups that use its chips. [The New York Times]
o How much are you willing to spend on popular dating apps, such as Tinder or Bumble? Providers are betting that users are willing to pay up, testing the limits of how much their users are willing to pay. Match Group, the owner of popular dating apps such as Hinge and Tinder, is planning to raise the premium monthly rate on Hinge to $50, up from its previous price tag of $35 per month. Meanwhile, the company is considering a plan to raise the premium monthly price for Tinder to near $500. Other companies are also considering price hikes.
Consumers have shown a willingness to pay more for a range of services, such as streaming or shopping platforms, and companies need to keep up with rising costs. The dating apps are betting that users will be willing to pay up in an effort to meet someone and never have to use the app again. Elevating premium subscriptions prices does come with risk, as consumers are dealing with inflated prices and tight budgets, as well as layoffs in certain industries such as technology, finance and entertainment. [The Wall Street Journal]
o Could inflationary pressures become more difficult for central banks to manage in the years ahead? According to research, the answer is yes. The prevalence of trade barriers, an aging population and a broad transition from carbon-spewing fossil fuels to renewable energy could make it harder for the Federal Reserve and other global central banks to meet their inflation targets.
The global economy has been moving to greater integration in the last few decades, allowing goods to flow between trade partners. Those allowed countries, such as the United States, to keep low-wage production overseas and Americans enjoyed inexpensive goods that helped to keep inflation low. However, multinational corporations have been shifting their supply chains since the COVID-19 pandemic away from China. They are focusing on producing more items in the United States. [AP News]
o Mortgage rates have climbed to their highest level in more than two decades. Sales of existing homes have decreased, while new home sales are selling fast. What should consumers know about the unusual housing market? NPR provides a list of five things to consider.
Some buyers are being priced out of the market because interest rate increases have led to more expensive mortgages. The average 30-year home loan reached 7.23 percent last week, which is the highest since 2001. While some would-be buyers are forced to sit on the sidelines, many sellers are as well because it would be costly. Many Americans took advantage of low interest rates by refinancing their homes and they don’t want a higher rate after selling their home and buying another property. Many transactions for homes still have bidding wars between potential buyers willing to pay up. The average existing home in the United States sold in July for $407,000 which is an increase of 1.9 percent from a year ago. With a shortage of existing homes on the market, buyers are turning their attention to new homes. Sales of new homes were up 31 percent in July compared to a year ago. Finally, builders have adjusted the way they are building homes. They’re designing smaller homes in an effort to keep prices in check. The average new home is now about 2,200 square feet, compared to 2,350 square feet at the end of 2021. [NPR]