As parents gear up for the most expensive back-to-school season ever, and credit card delinquencies are on the rise, Fed Chair Jay Powell still believes inflation is still ‘too high’ – a possible hint that the US central bank is not done with interest rate hikes.
This may mean tougher times ahead for the hoard of fresh graduates currently struggling to get jobs. But more importantly, a loss of faith in the US economy considering that more than half of Americans aged 50 years and above believe that the Social Security program will soon run out of money.
Here is a rundown of financial news that made headlines this week.
Powell warns inflation remains “too high”
Fed Chair Jay Powell has warned that inflation “remains too high,” raising the possibility of additional interest rate hikes in the world’s largest economy if price pressures continue.
In a highly anticipated speech on Friday, the chair of the US Federal Reserve indicated the central bank’s willingness to maintain a “restrictive” policy to bring inflation down to its target of 2%.
Powell stated at the Fed’s annual economic symposium in Jackson Hole, Wyoming,
“Although inflation has decreased from its peak — a welcome development — it remains too high.”
“We are prepared to increase rates further if necessary and intend to maintain a restrictive monetary policy until we are confident that inflation is moving sustainably towards our target,” he added.
Rite Aid stock plummets by 50% in a single day
Rite Aid is getting ready to file for bankruptcy following the wave of lawsuits over its alleged role in the sales of opioids. The pharmacy chain is likely to file for Chapter 11 in the next few weeks to deal with a large number of federal and state lawsuits.
The filing would cover Rite Aid’s more than $3.3 billion in debt and ongoing legal claims that it gave out too many painkillers by prescription.
Rite Aid would join a number of prescription opioid companies, such as Purdue Pharma, which made OxyContin and went bankrupt after being sued for contributing to a drug abuse problem in the U.S.
US retailers note rising credit card delinquencies
U.S. department stores have long offered store credit cards, which frequently offer discounts or points on purchases, as a means of capturing sales and increasing revenue. However, retailers are starting to notice a rise in delayed in-store credit card payments.
Macy’s executives disclosed that rising delinquencies reduced credit card revenues to $120 million in the second quarter, a decrease of $84 million from the first quarter.
Another retailer, Nordstrom, reported that delinquencies are now above pre-pandemic levels and may, “result in higher credit losses in the second half and into 2024.”
US graduates struggle to find jobs straight out of college
After a record year of hiring in 2022, businesses are slowing down in 2023.
Graduates who anticipated a robust job market are instead finding a market in which fewer companies are actively recruiting.
Apart from fears that the economy is going into a recession amidst rising interest rates, the recent avalanche of layoffs in the tech sector has contributed to a labor glut as more seasoned professionals are available to take on roles that were previously reserved for recent graduates.
This is in addition to the increasing number of students not receiving permanent roles after completing internships.
Wayfair, Google, and Meta are some of the companies that have announced hiring freezes. Others like Amazon have delayed the start of employment for new college hires by up to six months as a result of the “difficult economic conditions.”
Americans getting worried that Social Security may run out of money
Concerns about the Social Security liquidity loom large in the minds of Americans.
75% of individuals aged 50 and older are concerned that Social Security will run out of money during their lifetimes, according to a survey conducted by the Nationwide Retirement Institute between May and June. In 2014, 66% of respondents expressed the same sentiment.
Questions about the program’s long-term viability come as more Americans are depending on social security as their sole source of income. In 2023, 21% of Americans will rely on Social Security as their sole source of income, compared to 13% in 2014.
Meanwhile, the fund that the Social Security program relies on to pay retirement benefits is projected to last until 2033, which is less than a decade away, with 77% of benefits payable by then.
As the program’s funding expiration dates approach, these concerns have intensified. The combined program funds are expected to run out in 2034, at which point 80% of benefits will be paid, according to Social Security’s trustees.
Parents prepare for the most expensive back-to-school season yet
This could be the most expensive time to go back to school for kids and their families.
The National Retail Federation says that spending on back-to-school items, including those for college students, is projected to reach a record $41.5 billion this year. This is up from $36.9 billion last year and the previous high of $37.1 billion in 2021.
The NRF found that families with kids in elementary school to high school plan to spend an average of $890.07. This is $25 more than last year’s record, which was $864.35.
A separate CNET Money poll found that 43% of back-to-school shoppers will have to use some kind of credit to pay for supplies this year.
11 Smart Ways to Save on Back to School Shopping
A peek inside Warren Buffett’s portfolio
The latest 13-D filings of Berkshire Hathaway give investors a peek into what Warren Buffett has in his portfolio – at least in the last quarter.
Known as a buy-and-hold investor for hanging on to stocks for years and even decades, Buffett has shown he can change with the times. The investing legend ditched Capital One Financial (COF) in Q2 2023, after opening a bet on the financial company just the prior quarter.
In 2022 and 2021, Berkshire Hathaway dumped various drug and biotech stocks, not long after opening stakes in those drug stocks.
Bank of America remains No. 1 Warren Buffett stock by number of shares, but Apple has the largest portfolio share by market value, making up 51% of Buffett’s investment pie. Berkshire’s stake in the tech company was worth $177.6 billion at the end of June 2023.
Instacart prepares to file for IPO
Instacart has filed for an initial public offering on the Nasdaq exchange, in preparation for its shares to begin trading the following month. The initial public offering of San Francisco-based Instacart is anticipated to contribute momentum to a strengthening IPO market.
The filing reveals that Instacart secured Norges Bank, the Norwegian sovereign wealth fund, and venture capital firms including TCV, Sequoia Capital, D1 Capital Partners, and Valiant Capital as cornerstone investors, purchasing approximately $400 million in its stock.
It has also consented to a $175 million private placement with PepsiCo, which will convert at the IPO.
Revenues for Instacart increased by 590 percent in 2020 compared to 2019 due to the increased demand for online food shopping caused by the coronavirus epidemic. As a result, the company’s valuation skyrocketed, reaching a peak of $39 billion in 2021.