Economics in the News – May 1-7, 2023
Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.
o JPMorgan Chase CEO Jamie Dimon has been in charge of the bank since 2006 and since that time, he has helped it become a dominant player in the industry. When JPMorgan Chase executives outbid their peers to buy doomed First Republic Bank last Monday, it was the third time since 2008 that the nation’s largest bank had agreed to a federally backed transaction. JPMorgan Chase also took over Washington Mutual and Bear Stearns during the 2008 financial crisis.
While all three deals were completed to defuse tension, JPMorgan Chase has benefitted on its way to $3.7 trillion in assets and 14 percent of all deposits in the United States. JPMorgan’s agreement to purchase First Republic is expected to boost its profits by $500 million this year and provides the bank with an increased share of wealthy clients. The bank has drawn the ire of some experts, who believe that its dominant position crowds out community leaders and leaves customers with limited access. [The New York Times]
o Johnson & Johnson has spun off its consumer health business, forming Kenvue. Traded under ticker symbol, KVUE, Kenvue debuted on the New York Stock Exchange on Thursday. The company’s first session saw it climb 22 percent from its initial public offering price of $22 per share.
The company, which produces iconic brands such as BAND-AID, JOHNSON’S LISTERINE, TYLENOL, and NEUTROGENA, becomes the largest pure-play consumer health company by revenue. Its $3.8 billion IPO was the biggest since Rivian Automotive in 2021. [Bloomberg]
o United States Treasury Secretary Janet Yellen warned that the country could run out of money to pay its bills by June 1 if Congress does not raise or suspend the debt limit. The warning places pressure on President Joe Biden and lawmakers to reach an agreement to avoid the nation defaulting on its debt.
Economists caution that the failure to raise the debt limit threatens to cause chaos in the financial markets and throw the global economy into a recession. The United States technically reached its debt limit in January, but the Treasury department has employed an accounting mechanism dubbed extraordinary measures to allow the federal government to keep paying its bills. [The New York Times]
o The average price for a new car in the United States reached $48,008 in March, an increase of 30 percent from March 2020, according to Kelley Blue Book. The high price, combined with high interest rates are pricing many Americans out of the new car market. Spending on new cars by the lowest 20 percent of earners is at its lowest levels in 11 years, while spending by the top 20 percent of earners is at its highest level on record, since 1984.
Rising interest rates have made car payments more expensive, with the average monthly car payment of $730 last month. For years leading up to the pandemic, the average monthly car payment hovered between $500 to $600. In addition, manufacturers have been focused attention on pricier models and have cut back on less expensive options since the global chip shortage. The scarcity caused manufacturers to ration their supplies, reserving them for the most profitable vehicles. Factory closures in China and ongoing labor shortages have caused increased production costs. [The Washington Post]
o Chinese electric car brands are expanding into global markets, bringing fast-developing technology and low prices. Nearly half of global battery-powered vehicles or gasoline-electric vehicles were sold in China last year, with more than 6.9 million vehicles sold. China’s EV industry has been supported by multibillion-dollar subsidies from the Communist Party.
Brands such as NIO, Warren Buffet-backed BYD Auto and others are competing with established brands in Western and Japanese markets. Some of the brands are competing on price, while others are competing on performance. Prices start as low as 100,000 yuan ($14,500) for a compact SUV with a 400-kilometer (250-mile) range. Meanwhile, Chinese brands are hesitant to sell in the US market, because of the need for big investments in dealerships and charging networks. The ongoing feud between Bejing and Washington over security, technology and human rights also plays a role. [Associated Press]