Higher Rock Education - Economics Blog

Tuesday, March 07, 2023

Economics in the News – Feb. 27 – March 5, 2023

Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.

o   Discount dollar stores experienced rapid growth during the COVID-19 pandemic, with over one-third of all stores that opened in the United States in 2021 and 2022 being dollar stores. However, some municipalities are pushing back against dollar stores with more than 70 stores being rejected by communities. By comparison, from 2015 to 2018, roughly 25 municipalities rejected dollar stores. 

Dollar retailers are being rejected in part because of their reputation to undercut the prices at local grocers and the low pay that they generally offer workers. Dollar stores operate with a minimal staff with 92 percent of Dollar General workers earning less than $15 per hour, lower than many other restaurants and companies. That is despite the stores being highly profitable with Dollar General earning a $9.5 billion in net sales in the final quarter of 2022 while Dollar Tree saw net sales climb to $28.3 billion. [The New York Times]

o   Why has the next United States recession become the most anticipated in recent history? Economists broadly anticipated a recession by mid-year, as the Federal Reserve continues to raise its benchmark rate to combat inflation. But continued strong hiring and consumer spending have postponed a recession that some still expect to happen but many believe it will take longer to cool the economy. Economists at Goldman Sachs are anticipating the Fed to raise rates to just below six percent if consumer spending continues at higher-than-expected levels. 

Typically when the Fed raises interest rates, the demand for housing and cars falls leading to production cuts and layoffs. However, builders are completing homes and apartment buildings started while interest rates were low, while popular fuel-efficient cars are benefitting from pent-up demand. Meanwhile, economists at Morgan Stanley estimate that employment levels are slightly below what they would have been if the pandemic had not occurred. [The Wall Street Journal]

o   The United States economy isn’t the only economy that has surpassed expectations in 2023 amid predictions of a recession. The global economy – led by the United States, China and Europe – are surpassing expectations in 2023, but that may be bad news for central bankers around the world. Despite the global economies resilience, Moody’s still expects a slowdown this year, 0.9 percent in the United States and 0.5 percent in Europe. 

Worldwide resilience and continuing high inflation may lead central bankers to continue raising interest rates with a slowdown coming in 2024. Recent data in Europe showed that the core rate of inflation – excluding oil and food – hit a record high in February. China’s recovery has boosted factory production throughout Asia but its not yet clear how much China’s re-opening will benefit the region. [The Wall Street Journal]

o   Supply chains pressures have eased and are back to pre-pandemic levels, according to the Federal Reserve Bank of New York. The bank’s Global Supply Chain Index moved to a reading of negative 0.26 in February, marking the first negative reading since summer 2019. The February reading was a decrease from 0.94 in January. 

Economists expect that an easier time moving goods around the world could help reduce price pressures, as supply chain pressures have been a key driver of the high inflation that has impacted the global economy. [Reuters

o   Five major grocery chains across the United Kingdom are limiting the number of some produce items that customers can buy. German discount retailer Lidl joined Tesco, Asda, Morrisons and Aldi in capping the sales of produce. The five grocery chains make up roughly two-thirds of the marker share of grocery stores in Britain. Lidl is limiting the number of tomatoes, cucumbers and peppers that a customer can buy to three per customer.

Cold temperatures and frost has damaged much of this year’s crop in Spain, which is the primary supplier of vegetables in Britain. In the Spanish province of Almer ía, tomato sales are down 22 percent in the first two weeks of February compared to a year ago. Cucumber sales are down 21 percent, while pepper and eggplant sales have declined 25 percent. Other European countries that rely on imported produce have seen some supply constraints but not to the same extent as Britain. That is partly due to the willingness of other European countries to pay higher prices, earning preferential treatment from suppliers. [The New York Times]  


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