Higher Rock Education - Economics Blog

Thursday, May 30, 2024

Economics in the News – May 20-26, 2024

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

o   A new era of collegiate athletics is near and includes paying athletes directly. The NCAA reached a $2.8 billion settlement in a class-action antitrust lawsuit , which, if approved, would allow for the creation of the first revenue-sharing plan for college athletics. The settlement comes from a case from March where the Dartmouth men’s basketball team voted to form a union after a federal official ruled that players were employees of the school.

The settlement includes two components – back pay from name, image and licensing revenue that were denied to players before the rules changed three years ago, and a framework for paying athletes from the revenue generated from football broadcast rights moving forward. Critics wonder if women would be compensated fairly, and whether smaller conferences would bear a disproportionate burden of the settlement. [The New York Times]

o   The king of the artificial intelligence (AI) boom – NVIDIA – once again showcased why it’s the most dominant player in AI with its recent earnings report of soaring revenue and profits. The company reported a revenue of $26 billion in its most recent quarter, surpassing its own lofty expectations and tripling its sales from a year earlier. The company, whose stock is up 90 percent for the year, announced a 10-for-1 stock split.

NVIDIA has benefited by making an early bet on adapting its graphics processing units (GPUs), to take on computing tasks. The company, which originally sold chips to aid in graphics images for video games, sells its chips for AI tasks and develop software to aid developments in the field. The H100, NVIDIA’s flagship chip, is powering AI chatbots such as OpenAI’s ChatGPT. However, competition is heating up with the likes of Microsoft, Meta, Google and Amazon having all developed chips that can be tailored for AI. [The New York Times

o   Red Lobster – the largest seafood chain in the United States – has filed for bankruptcy. A series of poor decisions, including an all-you-can-eat-shrimp promotion starting for $20. Nearly 580 locations across the United States and Canada are expected to remain open, employing an estimated 36,000 workers. The company closed numerous locations abruptly, auctioning off freezers, ovens, booths and lobster tanks.

Red Lobster opened in 1968 and experienced tremendous growth throughout the 1980s and 1990s. In more recent years, the company has been losing out to fresher, nicer, more local restaurants, as well as less expensive, quicker alternatives. Red Lobster experienced massive financial losses throughout the pandemic, followed by increases in costs of food and wages. The all-you-can-eat-shrimp promotion was cited as the primary cause of its $11 million in losses in a quarter, with diners staying for hours at a time and purchasing little else. [NPR]

o   Have you noticed lower prices at the grocery store? Grocery retailers such as Target, Walmart, and Aldi have started rolling back costs on groceries and household staples. The shift has come as consumers have indicated their discontent with higher prices – which are ultimately threatening the bottom line of the retailers.

Grocery prices have spiked nearly 27 percent since 2020, outpacing overall inflation. Target has announced lower prices on nearly 5,000 items, including staples such as milk, produce, bread, and coffee. Aldi, which is the fastest-growing grocery chain in the United States, announced price cuts on 250 items. Meanwhile, Walmart is seeking to retain the higher-end customers that it has acquired over recent years by debuting 300 new products under its new private label Bettergoods. [The Washington Post]

o   Sales are ramping up among electric vehicles (EV) across the United States. After a slow start to the year where sales were largely flat throughout the first quarter that resulted in Ford scaling back expansion plans among EVs and Tesla laying off 10 percent of its global workforce. However, six of the 10 largest EV makers in the United States saw their sales growth increase compared to a year ago.

Consumers are flocking toward companies that offer superior battery range, faster charging times and cars that are higher value. Analysts believe that General Motors will become the biggest driver of EV growth in the United States throughout the remainder of 2024. The International Energy Agency estimated in April that US sales of fully electric vehicles will climb to 2.5 million in 2025, compared to 1.1 million in 2023. Meanwhile, Tesla, who is responsible for more than half of the country’s EV market, remains in an underperformer for the year. [Bloomberg]

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