This Doesn’t Feel Like A Recession

Plus: Jay Powell wants those pesky Russians to stop playing on his phone ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

April 28, 2023

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Good morning and happy Friday.

Jamie Dimon and his leadership are still struggling to get their workers off the couch and back into the cubicle. The backlash to a recent memo urging a return to office was so strong that the bank was forced to lock down the comments section on its internal messaging system to cool things down, according to reporting from The New York Post.

Perhaps Dimon and Co. could look toward Silicon Valley, where a recent round of techie pink slips has spurred an office revival, with Google’s New York office now often at capacity. Apparently, free lunches and nap pods can only get you so far.

Morning Brief

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Growth is slowing. But so what?

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Europe’s biofuel dreams get the squeeze.

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Let it go to voicemail next time, Jay.

Macroeconomics

GDP Growth Slowed, But It’s Not All Bad News

Another quarter, another Rorschach test on the state of the American economy.

Surprisingly slow GDP growth stole all the headlines following Thursday’s release of new data from the US Commerce Department, but look under the hood and there are plenty of signs of resilience. At this point, it may be worth asking: is this what a soft landing feels like?

Spend, Baby Spend

Growth did slow down in the first three months of 2023. Perhaps quite considerably. GDP increased by 1.1% over the quarter, down from 2.6% in the final three months of 2022 and well below most economists’ expectations of 2%. It’s easy to see why: non-residential fixed investment (a.k.a. how much businesses are spending on themselves) increased at an annualized rate of 0.7%, considerably lower than the 4% growth posted in the previous quarter, and likely a reflection of increased borrowing costs. That’s also the most obvious culprit for the over 5% dropoff in pending home sales, the biggest drop since September, according to National Association of Realtors data also published on Thursday.

That’s the bad news. The good news is that there are plenty of reasons to believe the slowdown was temporary. Chief among them is a huge swing toward businesses relying on inventories rather than producing new goods, and thus not contributing to GDP. It’s also a trend that’s likely to reverse quickly if businesses continue to satiate the high demands of a shockingly resilient US consumer base:

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Consumer spending jumped by 3.7% in Q1, its highest quarterly leap in nearly two years, as Americans continued to tap pandemic savings. Spending on goods jumped nearly 7% (also a two-year peak), while spending on services also continued to grow.

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Undergirding that robust spending is the continued strength of the job market. While jobless claims increased slightly, the unemployment rate is still hovering at near historic lows.

“Really peeling back the layers, it is very positive in terms of consumer spending,” Kristina Hooper, Invesco’s chief global markets strategist, told the Financial Times. Of course, that comes with a Fed-tinged caveat: “Seeing a robust amount of consumer spending can raise concerns that that is going to fuel more Fed rate hikes.”

Around the World: The US’ growth slowdown is something of an outlier on the global stage. China reported annual growth of 4.5% earlier this month, as consumer spending continues to rebound dramatically following the lifting of strict zero-Covid policies. In Europe, Belgium and Sweden posted GDP numbers better than expected on Thursday, while the rest of the eurozone is projected to show annual growth as well.

– Brian Boyle

Energy

Europe Wrangles With Biofuel Oversupply Problems and Possible Fraud

Imagine finding out your super extra premium virgin olive oil was actually just some canola oil with green food coloring.

On Thursday Bloomberg reported that the EU, which is aggressively pushing up targets for switching to green fuels, is facing a big problem: biofuel imports from China flooding the market. And as if market dynamics weren’t slippery enough, there are some concerns that the imports aren’t even 100% bona fide, as rumors swirl that Chinese exporters may be juicing up profits by cutting their clean energy with not-so-clean ingredients.

Mixed In China

Companies that export biofuel into Europe enjoy the subsidies the bloc has put in place to reach its goal of having 14% of the energy in its transport system come from renewables by 2030, with at least 3.5% of it coming from advanced biofuels. This week, the EU mandated that starting in 2025, aircraft fuel needs to be mixed with sustainable fuels at a ratio of at least 2%. It wants that proportion to slide up to 70% by 2050.

Biofuels require a lot of land that would otherwise be used for agriculture to produce, so importing from large, arable nations makes sense at first blush. But international collaboration always comes with some risks, and for European green policies that has meant Chinese exporters flooding the EU market with cheap product, causing some local producers to hit pause — and cry foul play:

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One of the causes for suspicion is that the rise of Chinese biodiesel exports in 2022 coincided with increased imports of waste palm oil from Malaysia and Indonesia into China. That wouldn’t usually be a cause for alarm, except for the fact that palm oil production (of which waste palm oil is a byproduct) held relatively steady throughout the year — causing some to worry those imports contain other ingredients masquerading as waste palm oil.

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“You have a massive inflow of premium products arriving on the EU market at a very low price. Probably also partly because it is not based on the real feedstock,” European Biodiesel Board Secretary-General Xavier Noyon told Bloomberg. “At least that is what we strongly suspect.”

The Statler And Waldorf Effect: While Europe and the US bust open their wallets to hasten the green revolution, His Majesty’s United Kingdom appears to be lagging behind. Data produced by the UK parliament shows overall British investment in the energy transition fell 10% from 2021 to 2022, while the US and Germany increased their investments by 24% and 17% respectively. Don’t write off all Brits as apathetic to the climate crisis just yet though: protesters crashed BP’s annual shareholder meeting in London on Thursday to heckle its chair and CEO.

– Isobel Asher Hamilton

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International

Powell Pranked by Putin Proponents

(Photo Credit: Simone Fontana/Flickr)

Hey, Jerome Powell, is your refrigerator running?

A video aired on Russian state television showed the Fed chairman discussing the US economy with whom he thought was Ukrainian President Volodymyr Zelenskyy. Turns out it was just a prank call, orchestrated not by teenagers but by a pair of adult men in their 30s.

Well, You Better Go Catch It

The crank-call culprits were Vladimir Kuznetsov and Alexei Stolyarov, staunch supporters of Russian President Vladimir Putin who go by the nicknames Vovan and Lexus. And let’s just say these two lack even the basic “charm” of asking America’s chief central banker weirder and weirder questions before yelling the Russian equivalent of “Bababooey Bababooey!”.

Instead, the call came off like a normal discussion for Powell. He talked about rate hikes, inflation, and the US economy likely entering a recession — y’know, the classic Jay Powell rap. A Fed spokesperson confirmed to Bloomberg that the call did happen but some of the video appears to have been edited for Russian TV and might not be fully accurate.

It’s not the first time the duo has gotten powerful world leaders on the phone with seemingly little resistance:

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In the past, Kuzentov and Stolyarov successfully prank-called Polish President Andrzej Duda, European Central Bank chief Christine Lagarde, former German Chancellor Angela Merkel, and a handful of celebrities including Elton John, Billie Eilish, and Joaquin Phoenix. Often they pretend to be another high-ranking official or significant public figure like environmentalist Greta Thunberg.

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While the stunts appear to be mostly harmless ribs of Western policymakers and cultural icons, the ease at which Kuzentov and Stolyarov pull them off has some authorities believing the pair are actually supported by Kremlin propaganda and foreign political interference programs.

Deciphering the Fed: While Russian pranksters are trying to goad Powell into revealing economic secrets, JPMorgan is working on a different kind of project to understand just exactly what the heck the Fed Chair is thinking at any given moment. Using a new artificial intelligence model, the bank has begun analyzing the past 25 years of Fed speeches and statements to see how they might foreshadow actions by the agency and general economic outcomes. A computerized “room reader” if you will.

– Griffin Kelly

Extra Upside

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Pedal to the metal: The latest Forza racing game will be accessible to blind gamers.

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Down by the beach: Hampton home prices hit a record average of $3 million.

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Just For Fun

Pro tip.

Out of juice.

Have a great weekend!

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