The US economy, which has continued to show resilience this year, may still be able to weather new storms, but if there are as many as four "superhurricanes" in a given period of time, will the US economy be able to withstand the impact?
Now, this thorny question may already be in front of Federal Reserve Chairman Jerome Powell...
The U.S. economy has seen some choppy waters this year, but perhaps none more uncertain than the current one. The list of possible challenges this fall includes a prolonged shutdown of the U.S. government, a larger auto worker strike, the resumption of student loan payments, and a sharp rise in oil prices.
While each of these challenges may not do much harm in isolation, the combination of these factors could create a "1+1+1+1 +1 is much more disruptive than 4", especially in the context of high interest rates that have rattled financial markets.
Gregory Daco, chief economist at EY Primus, said all four threats could disrupt economic activity.
Many analysts are already predicting a rapid slowdown in U.S. economic growth in the fourth quarter of this year, though not an immediate recession. Daco forecasts that growth will slow sharply to 0.6% in the fourth quarter from 3.5% expected in the current quarter. Economists at Goldman Sachs expect fourth-quarter growth to slow sharply to 1.3% from 3.1% in the third quarter.
The threat of a government shutdown looms
The most immediate risk to the U.S. economy is undoubtedly the looming government shutdown in less than a week. September 30 is the last day of the U.S. fiscal year 2023, and the U.S. Congress needs to pass a budget appropriations bill before that day to cover discretionary spending and federal agency funding for the next fiscal year.
If the budget appropriations bill, or stopgap funding bill, is not passed by that deadline, the U.S. government could again be shut down. For now, the two parties' members of Congress are far apart.
In the event of a government shutdown, many government functions other than Social Security would be suspended and hundreds of thousands of federal employees would be put on unpaid leave. These government employees are likely to reduce spending during the shutdown, and the government will temporarily reduce purchases of goods and services.
A similar standoff in December 2018 led to a five-week government shutdown, the longest in U.S. history. About 300,000 federal workers were furloughed. That reduced economic output by 0.1 percentage points in the fourth quarter of 2018 and 0.2 percentage points in the first quarter of 2019, according to the Congressional Budget Office.
For Federal Reserve Chairman Powell, once the government shutdown for a long time, it may also have a significant impact on the Federal Reserve's decision-making - because it will make the Federal Reserve dependent on economic data to make decisions without data available, combined with unstable economic conditions, which will lead to the Federal Reserve to stay on hold this year.
The general strike in the automobile industry continues
In the United States government shutdown threat is imminent, the general strike in the United States auto industry is still not showing signs of abating, and even getting worse.
The United Auto Workers union (UAW) strike, which began Sept. 15, is still "ongoing." On Friday, Shawn Fain, president of the United Auto Workers union, said the strike would extend to 38 GM and Stellantis parts distribution centers in 20 states.
While the initial impact of the limited strike is expected to be modest, a wider lockout could dampen U.S. auto production and drive up vehicle prices. Workers at auto parts suppliers could also lose their jobs. According to Goldman Sachs, each week of widespread strikes reduces annualized economic growth by 0.05 to 0.1 percentage points.
The strike could also delay the auto industry's full recovery from the supply chain disruption caused by the coronavirus, as factories shut down. For much of last year, dealers had tight inventories of vehicles on hand as parts shortages crimped production. That has pushed up car prices sharply at a time when many households are looking to buy.
University of Michigan economist Gabe Ehrlich said, "While I don't think the strike itself will push the economy into recession, there are other obstacles." Put it all together and it could be a bumpy fourth quarter."
Student loan payments will resume
Another major current risk to the U.S. economy is the resumption of federal student loan payments on October 1.
Starting in October, tens of millions of student loan borrowers will need to pay an average of $200 to $300 a month. It will be the first time borrowers have had to repay their loans since loan repayments were suspended in March 2020. During that time, they spent their money on TVS, travel, new homes and thousands of other products. That spending is also one reason why the economy has remained resilient in recent years despite soaring interest rates.
Tim Quinlan, an economist at Wells Fargo, estimates that restarting student loan payments could take about $100 billion out of Americans' pockets over the next year.
Some of the nation's biggest retailers are now worried about a potential slowdown in consumer spending as student loan payments resume. Michael Fiddelke, chief financial officer of retail chain Target, said last month that "the imminent resumption of student loan payments will put additional pressure on tens of millions of families with already tight budgets." Against this backdrop, our plans remain cautious."
The UBS analysts noted that retailers including Target, Nike and Under Armour could take a hit because student loan borrowers make up a higher percentage of customers. The result could be an overall decline in retail sales and consumer spending.
Rising oil prices haunt inflation
Finally, a big reason why the Fed remains a hawkish mute in the face of a range of uncertain downside risks to the economy is the recent surge in oil prices.
The rise in gasoline prices is putting the Fed in a complete bind. Brent crude has been hovering above $90 a barrel for the past few days, well above its level of just over $70 this summer. Gasoline prices surged 10.6 percent in August from a month earlier, the biggest one-month increase since June 2022, according to the Labor Department.
That sent consumer inflation higher for the second month in a row after trending lower last year. Prices at U.S. gas stations have mostly held steady at higher levels this month. The average price of a gallon of regular gasoline was $3.86 on Friday, according to OPIS, a provider of energy data and analysis.
Rising energy costs, like student loan payments, have cut into Americans' budgets for eating out, buying holiday gifts and other discretionary spending. Higher energy costs can also affect the price of goods and services that are manufactured, transported or flown. Air fares in the United States rose nearly 5 percent last month. Persistent inflation could put pressure on the Federal Reserve to keep interest rates higher for a longer period to slow the economy further.
US Federal Reserve officials will take turns this week
In fact, the above four major challenges facing the US economy are not even sorted out by the outside world, but summed up by Federal Reserve Chairman Powell himself...
At a press conference following Wednesday's meeting, Powell cited "strikes, a government shutdown, a resumption of student loans, a rise in long-term interest rates, an oil price shock" when asked about external factors that could affect the economy. Powell said, "You have an economy that appears to have strong momentum. That is our starting point. But we do face a number of risks."
This week, a number of Fed officials, including Powell, will also take turns again, which is worth investors' close attention. The following is a detailed schedule of their speeches (all in Beijing time) :
Tuesday 06:00: Minneapolis Fed President Neel Kashkari speaks;
Wednesday 01:30: Fed Governor Jeffrey Bowman delivers welcoming remarks at an event;
Thursday 21:00: Chicago Fed President Goolsbee speaks;
Friday 01:00: Federal Reserve Governor Lisa Cook speaks;
Friday, 04:00: Federal Reserve Chairman Jerome Powell will join the conference and answer questions from the live audience and online participants;
Friday 07:00: Richmond Fed President Barkin speaks on monetary policy.
Saturday 00:45: New York Fed President John Williams participates in a discussion on the economic outlook and monetary policy.