Economics in the News – Oct. 9-15, 2023
Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.
o The auto industry’s push for electric vehicles (EV) has cooled, as buyers are showing less interest than expected. Automakers are tempering expectations for EV sales, with companies such as Ford and Toyota shifting more resources into hybrid models which has been drawing consumers at a faster clip. EV sales have continued to grow this year, but the rate of growth has decreased with excess inventory piling up at dealerships.
Part of the slowdown is in part of a more hesitant group that have been slow to shift toward EV models, while the early adopters willing to pay a premium have already made their purchase. Many consumers are reluctant to make the switch due to the high sticker price and the inconvenience of driving a vehicle with a limited range and needs regular recharging. As a result of the high price, carmakers have responded by cutting prices and offering discounts on EV purchases. The average price for a battery-powered vehicle was $50,683 in September, compared to $65,000 during the same period last year. [The Wall Street Journal]
o Microsoft has closed its highly anticipated deal to acquire video game giant Activision Blizzard for $69 billion. The deal is the largest consumer tech acquisition since AOL acquired Time Warner more than two decades ago. Microsoft was able to overcome significant regulatory hurdles in the United States and Britain to deal to acquire Activision Blizzard. Regulators scrutinized the competition in the video game industry since Microsoft owns Xbox.
Microsoft acquires Activision’s flagship franchise, Call of Duty, and as part of the regulatory process, Microsoft agreed to continuing to allow access of Call of Duty on game platforms of rivals such as Nintendo and Sony. Call of Duty games alone have generated more than $30 billion in lifetime revenue, while other popular games such as Candy Crush, World of Warcraft and Diablo are under the Activision Blizzard portfolio. [The New York Times]
o The tech industry is booming in Austin, Texas, where tech staples such as Apple, Google, Meta, and Palantir have expanded, and Tesla has their headquarters. Because of the rapid expansion, roughly six million square feet in office space will hit the market in the next few years. The office market will grow nearly 25 percent – the fastest rate in North America. Austin has grown to become the 10th largest city in the United States.
However, despite all of the new office space, much of the new space is set to open without a tenant. Remote work continues to thrive, even as companies try to entice employees back to the office. Austin is similar to other cities such as San Francisco and New York, which are overwhelmed with unused office space. [The Washington Post]
o Major US pharmacy chain Rite Aid has filed for bankruptcy protection, as it attempts to restructure its business while dealing with losses and opioid-related lawsuits. Based in Philadelphia, Rite Aid runs more than 2,000 stores with the majority of locations being on the East and West Coasts. The company has posted annual losses for several years and expects a net loss of as much as $680 million in the current fiscal year, ending in spring 2024. The company’s filing in US Bankruptcy Court in New Jersey listed $8.6 billion in total debts and $7.6 billion in total assets.
Rite Aid has been plagued by lawsuits over opioid prescriptions, including a $30 million settlement with the state of West Virginia last year. In addition, drugstores have struggled with prescription drug shortages and staffing shortages since the COVID-19 pandemic. Online competitors such as Amazon have hurt sales in areas of the store outside of the pharmacy. [Associated Press]
o Across the United States, nearly 690 nursing homes have closed their doors since 2020, according to the Centers for Medicare and Medicaid Services. That number is expected to rise in the coming years due to a combination of rising labor costs, falling enrollments and a lack of government reimbursements.
Further studies from the University of Iowa’s Rural Policy Research Institute, mapped the presence of nursing-home deserts. More than 10 percent of nonmetropolitan counties had no nursing homes at all, compared to less than four percent in metropolitan areas. The impacts can cause friction for families who have to make difficult decisions. In addition, local economies are taking a hit too because a nursing home can be the largest employer in a community and important for businesses such as pharmacies and florists. [Bloomberg]