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Chronicle of August 2023
New reshoring trend, "Barbenheimer", and new optimism
S&P 500 went down by 1.59%, including dividends. Energy was the only sector that gained during the month, while others experienced loses. As of August, Information Technology remained the top sector of 2023, driven mostly by an impressive 238% return of Nvidia Corporation over the last 8 months NVDA 0.00%↑.
The Acceleration of Reshoring
20 years ago, who would have predicted that “Made in USA” would become a global theme once again. Reshoring —bringing manufacturing and services back to the U.S. from overseas— has been driven by increasing offshoring cost (including labor and transportation) and rising concern over U.S. dependency on China. In 2011, Boston Consulting Group already discussed about why manufacturing will return to the U.S. But today, the pace is just accelerating.
U.S. monthly construction spending of manufacturing facilities in June was $196 billion, sharply rose by 80% compared to June last year. Factories are built at enormous rate. In contrast, China’s factory activity shrank for five straight months as of August.
Bipartisan bills such as Infrastructure Investment and Jobs Act (2021) and CHIPS and Science Act (2022) as well as a partisan Inflation Reduction Act (2022) have been criticized of adding budget deficits and inflation but praised as factors behind the latest reshoring trend.
One big challenge remains today: a lot of jobs but not enough workers to fill them. There are almost 10 million job openings in the U.S. with only less than 6 million unemployed workers. At least 4 million labor shortage and that is without even counting mismatch of skills. America needs a massive number of legal, hard-working immigrants more than ever.
Taylor Swift, Beyoncé, Barbenheimer, and Inflation
Slower rate of job creation happened in August. According to ADP, private sector added 177,000 jobs in August, compared with 371,000 in July. This may put downward pressure on inflation, which may affect the Federal Reserve's decision on interest rate in September. On the other hand, the Personal Consumption Expenditures (PCE) Index excluding the cost of food and energy (or so-called "core" PCE) rose 4.2% over the prior year in July (source: Commerce Department).
Quoting Jerome Powell, "Although inflation has moved down from its peak, a welcome development, it remains too high… We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective." Powell may be citing Core PCE as the Fed’s preferred inflation measurement instead of the widely known Consumer Price Index (CPI).
Robust PCE was partially driven by Taylor Swift and Beyoncé tours plus ticket sales of Barbie and Oppenheimer movies (the “Barbenheimer”). Those things were projected to add $8.5 billion to the U.S. GDP.
Business Leaders Sentiment
According to the latest PWC survey, executives are getting more optimistic. Only 17% of business leaders strongly agree that there will be a recession in the next six months, down from 35% in October 2022. Most of them are still worried about cyber security, uncertain economy, talent acquisition, but in their views, doing business is getting less risky. In terms of business direction, they are more likely to invest in new technologies and exploring new revenue streams.
Coming Soon Features
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As of the date of this publication, Christmas Corp and/or our clients have a beneficial long position in the shares of NVDA either through stock ownership, options, or other derivatives. We have no business relationship with any company whose stock is mentioned in this article.
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