🥳📦 Supply Chain Crunch Is Over! Now What?
Happy Wednesday all,
In today’s video over on YouTube, I did a deep dive into figuring out just exactly HOW much of your paycheck you should aim to save. A recent study showed that roughly 3 out of 4 people making less than $50k a year live paycheck to paycheck - but what’s even more startling is that as income increases, you would think that living paycheck to paycheck is virtually all but eliminated by the time you reach an income of over $200,000 per year. However, that’s not the case!
28% of people making $200K or more live paycheck to paycheck. How you might ask? It has to do a lot with lifestyle inflation and trying to keep up with others.
The personal savings rate in the US is around 3.5-4%, while in countries like China - the personal savings rate is closer to 52%. What’s up with this disparity? Besides a cultural difference, it has to do with how we are so focused on consuming.
One of the main ways you can save more is to figure out what your fixed expenses are every month - the expenses that NEED to be paid no matter what. Rent, Transportation, Utilities, Phone Bill, etc. Once you have that number - memorize it so that you know exactly what you need to live.
Then with any money left over, reflect on if you are spending too much and if that is getting in the way of your savings. Ideally, you’re aiming to save between 10-20% of your paycheck, if we can do this, then we’re ahead of what the data is telling us.
The full video will be linked here, or at the end of today’s edition.
Enjoy this week’s Hump Days!
- Humphrey, Rickie & Tim
Tweet of the Week
The Weekly Brief
Jerome Powell Says Fed Is Prepared to Speed Up Interest-Rate Rises (WSJ)
The Fed is considering raising interest rates by a larger half percentage point this month and suggested raising rates higher than previously expected to cool a surprisingly resilient economy. In December, target projections came in between 5% and 5.5% which would’ve been held until 2024. However, Fed officials are expected to revise their projections at their March 21-22 meeting.
Why Does it Matter?
A few months ago, experts saw slowly declining levels of inflation and were quick to suggest that the Fed may pivot by the end of the year. The economy came back as resilient as ever and put an end to that possibility (or so it seems). The Fed is still trying to get that "soft landing" they touted early on but as time passes, the likelihood of that soft landing diminishes as more aggressive action may be needed, potentially pushing us into a recession.
Mortgage Rates Jump Back Over 7% as Inflation Fears Drive Yields Higher (CNBC)
The average rate on the 30-year fixed mortgage jumped to 7.1% as fear is growing that inflation is not cooling off thus pushing bond yields higher. Mortgage applications from homebuyers have been falling for the past month and last week hit a 28-year low.
Why Does it Matter?
The real-world effects of raising interest rates are felt from a number of different areas, but one of those areas hits really close to home. Literally. With the rising interest rates, a buyer purchasing a $400k home with 20% down on a 30-year fixed loan, the monthly payment is roughly $230 more per month than it was a month ago. A mortgage payment today is about 50% higher than a year ago.
Global CO2 Emissions Hit a Record Even as Europe’s Decline (Bloomberg)
Global CO2 emissions rose to a record last year putting the world on pace for a dangerous level of global warming. According to the International Energy Agency, the largest increase came from Asia’s emerging markets, in large part due to coal-fired power.
Why Does it Matter?
Energy-related emissions rose by 0.9%, even as emissions in the EU fell 2.5% due to a mild winter cutting demand for heating and emissions in China (the world's biggest emitter) falling 0.2%. With these two factors considered, an even worse outcome was avoided but this is not a good trend to carry forward.
You’ll Find This Interesting
TikTok announced that the default screen time limit for users under 18 years old will be 60 minutes. Teens that hit this limit will be prompted to enter their passcode and are under to disable to feature entirely. This is just one feature in a set designed to improve the well-being of its younger users.
Source: The Verge
Hump Days Scoop
According to the Federal Reserve Bank of New York, global supply chains have “returned to normal”, with pressures dropping to the lowest since before Covid. What does this mean and how is this going to affect inflation? Let’s discuss.
Remind me, what did we see get affected by supply chain setbacks?
Over the course of the pandemic until recently, we saw two major industries affected by supply chain issues: technology and automobiles. If you recall during the peak of the pandemic, every company that had some technological component was saying they could not meet demand because of a semiconductor (chip) shortage. We saw shortages in PS5s, iPhones, major appliances, and especially, cars because of all the new tech that goes into them. Due to these shortages, we saw the prices for a lot of these products shoot up in the grey market, or in the case of cars, we saw the prices of used cars surpassing those of new cars simply because of accessibility.
So supply chain pressures eased. How did this happen and what does it mean?
The New York Fed credits the shift in supply chain dynamics as a result of China reopening its economy after extended periods of aggressive lockdowns and improved European economy delivery times. What’s interesting is that the Fed’s Global Supply Chain Pressure Index data showed that the supply side has improved but it still remained abnormally tight. What’s really relieving pressure is that demand has slowed making it easier for suppliers to satisfy the lessening demand.
Now as for what this means, there’s not one defined answer. With China back in the mix, many economists and policymakers are debating whether it will drive inflation upward due to higher economic activity, or result in lower prices because of increased supply meeting relatively unchanged/slowing demand. It is likely going to be a combination of the two, thus offsetting any major swings in either direction.
The news confirms earlier assumptions by the Fed so this is now new information to them as they had been anticipating for supply chain pressures to ease up anyway. This is likely already factored into the Fed’s decision today to announce they were ready to speed up rate hikes.
What did we learn from the supply chain crunch over the last 3 years?
I think it’s safe to safe we learned a lot over the last 3 years, but one of the biggest lessons we learned was how interconnected our global economy is. If you recall, a single ship getting stuck in a small seaport city in Egypt (Suez) had global supply chains in a frenzy for weeks. Here is what we can take away from our latest supply chain crunch.
Companies need to diversify their supply chains so as not to rely on any single supplier for a majority of their output.
Taiwan is critically important to the future of our global economy. Pretty much every industry is going to become significantly dependent on semiconductors as we advance technologically. This puts a lot of pressure on Taiwan because they pretty much own all of the manufacturing capacity, meaning if something were to happen (i.e., China invades), we may be in a lot of trouble.
Chart of the Week
The number of job openings in the US decreased slightly in January compared to the previous month, but it remained historically high, indicating a shortage of labor.
The Labor Department's JOLT Survey revealed that there were 10.8 million job openings in January, down from 11.2 million in December, but still higher than economists' median estimate of 10.5 million.