‘To No One’s Surprise,’ Fed Hikes Interest Rates

As predicted, the Federal Reserve followed through with its plan to hike interest rates on Sept. 26, increasing rates by a quarter point, while anticipating economic growth for the remainder of 2018 and into next year. The hike was of no surprised to anyone, said NACM Economist Chris Kuehl, Ph.D., who said the latest hike marks the eighth increase since 2015.

“The expectation is that Fed Chief Jerome Powell will reiterate the strategy touted all year: another quarter-point hike in December and perhaps three more in 2019,” Kuehl said. “The inflation threat is a little more pronounced than it was, but the bigger issue for the Fed has been trying to get rates up high enough so a future cut would make a difference. It is not that the Fed is expecting an imminent recession, but should there be one, they don’t have much ammunition with which to fight it.”

Although many economists believe economic growth will slow beginning in 2019, the Fed held its previous forecast of 1.8%, CNBC reported. Meanwhile, expectations were heightened for the next three months with a growth forecast of 3.1%. The forecast then dwindles in 2019 and 2020 to 2.5% and 2%, respectively.

President Donald Trump said at a press conference that he was displeased with the Fed’s decision to hike interest rates, saying he would “rather pay down debt or do other things, create more jobs.” Another interest rate hike is expected in December.

“I’m worried about the fact that they seem to like raising interest rates,” Trump said. “We can do other things with the money.”

—Andrew Michaels, editorial associate

Food, Chemical Products Amid Latest Chinese Retaliatory Tariffs on US

Tackling trade talks remains difficult for the U.S. and China as more of President Donald Trump’s tariffs go into effect today, placing a 10% tax on $200 billion of Chinese products such as furniture and appliances. According to CNBC, the tariff is expected to increase to 25% by the end of the year. This latest imposition was met with retaliation by Chinese President Xi Jinping, who said China plans to implement taxes on about $60 billion worth of U.S. imports.

The back-and-forth debacle between the world’s two largest economies has been ongoing since July when Trump put tariffs on $34 billion worth of Chinese goods, mainly industrial parts. On Sept. 24, CNBC reported that Beijing denied the U.S. president’s invitation to Washington, DC to discuss trade practices. Xi Jinpings’ recent tariffs announcement would put taxes on more than 5,200 imports, including a 10% levy on liquefied natural gas, coffee and several edible oils as well as a 5% levy on frozen vegetables, cocoa powder and chemical products.

U.S. Secretary of State Mike Pompeo recently told Fox News that if China does retaliate, Trump would implement even more tariffs on $267 billion worth of Chinese imports.

Although it is much too early to determine the effects of these tariffs, previous ones by the U.S. are showing negative impacts on certain industries. NBC News released an article last week that explored how the steel and aluminum tariffs are doing more harm than good for the U.S. auto industry. In the article, the Center for Automotive Research states car sales could drop by 2 million a year, causing a loss of 715,000 jobs and $62 billion of U.S. GDP.

“The impact could mean more than just higher costs,” the article states. “A number of medium-sized and smaller parts suppliers could be forced out of business, unable to afford the cost of relocating their operations back to the U.S.,” creating product shortages.

—Andrew Michaels, editorial associate

Consumer Demand, Not Trade War, Among CFOs Top Concerns

Risk assessment is part of the daily grind for any business, so when the U.S. stirred up trade controversies with other countries, economists saw American businesses’ concerns rise. While many believed the trade war was among these worries, a new CNBC survey suggests there are worse fears in the business community, specifically consumer demand.

On Sept. 20, CNBC released its Global CFO Council quarterly survey that ranked the “biggest external risk factor currently facing” businesses. In the first quarter of 2018, U.S. trade policy was the most concerning to CFOs at nearly 30%, but has since dropped to 10.4%. At that time, consumer demand was worrisome to about 21% of CFOs and steadily increased to almost 46% in the third quarter. In addition to U.S. trade policy, concerns of cyberattacks and over-regulation also decreased further into the year, while central bank policy increased minimally.

“The council’s global economic outlook remains finely balanced, with only two of 11 countries or regions—Brazil, and Latin America excluding Brazil—seen as ‘declining,’” CNBC reported. “All other areas were rated as ‘stable,’ except for the United States, which is ‘improving.’”

The majority of respondents in the third quarter noted that the technology sector will most likely see the biggest growth in the next six months, followed by the construction sector. The costs of labor are also expected to increase the most in those six months, as costs of raw materials and capital steadily rise.

—Andrew Michaels, editorial associate

Little Economic Impact Expected From Hurricane Florence

Natural disasters take a physical toll on impacted communities, the most recent example being the severe flooding from Hurricane Florence in North Carolina. With destruction and devastation comes economic hardship, but according to Moody’s Analytics, Hurricane Florence is expected to have a minimal impact on the U.S. economy. The latest hurricane hit the East Coast late last week and is responsible for at least 32 deaths as of Tuesday.

On Sept. 18, USA Today reported Moody’s analysis of the storm’s impact on the country’s economic growth, which predicts a drop of one to two tenths of a percentage point this third quarter. If economists’ earlier predictions are correct, the economy could still see expansion of about 3.7%; however, Oxford Economics anticipates slightly worse conditions, with a decline of two to three tenths of a percentage point. Moody’s and Oxford currently expect damage totals of $16 to $20 billion and $30 to $40 billion, respectively.

“Most of the lost economic output is likely to be made up in the fourth quarter as consumers make purchases they deferred and replace damaged vehicles, and repairs begin on effected homes and businesses,” USA Today reported.

Oxford Chief U.S. Economist Greg Daco said in the article that drops are possible in retail and services as well as manufacturing. While consumers may spend less on clothing, toys and jewelry, restaurants are likely to still see businesses. Hurricane Florence may also put a dent in industrial production in addition to overall employment, the latter of which is likely to bounce back in October or November.

Andrew Michaels, editorial associate

Lumber Prices Rise as Hurricane Florence Nears East Coast

As the East Coast prepares for Hurricane Florence to make landfall late Thursday or early Friday, the construction industry is already seeing the storm’s costly effects through lumber prices. According to Prosales magazine, the impending hurricane and any that follow are expected to bring a 10% lumber price hike that may last roughly two months.

On Sept. 11, Prosales reported this prediction after talking with lumber buyers in the construction industry, one of whom based the 10% hike on recent cost increases for Southern yellow pine. High lumber prices mean there’s a low supply because hurricanes not only close lumber mills, but also impact employees who focus their attention on repairing and/or rebuilding their own homes.

“Lumber prices look to be heading higher and are still sitting at levels that have hardly ever been reached before (with the exception of earlier this year),” Forest Economic Advisors-Canada Managing Director Russ Taylor wrote in his Wood Markets report last month. “As we’ve indicated for some years now, the North American lumber supply chain remains fragile, and any disruptions will only cause more price volatility.”

Despite increased costs of lumber, Associated Builders and Contractors, Inc. (ABC) reported Sept. 12 that construction material prices actually dipped about half a percent in August from the previous month. However, year-over-year (YOY), prices were much higher, coming in at just over 8%. Softwood lumber prices were among those materials to decrease—9.6% month-over-month—but were about 5% higher YOY.

ABC, in conjunction with Bureau of Labor Statistics data, said a likely reason behind the softwood lumber price drop is “a weakening single-family residential construction market” brought on by labor shortages, high land prices and high mortgage rates.

“In the final analysis, the falling input prices trend likely won’t continue,” ABC Chief Economist Anirban Basu said in a statement. “Inflation expectations have shifted, with purchasers of construction services now anticipating price increases and, therefore, more willing to accommodate them.”

Andrew Michaels, editorial associate

New Funding Option for UK SMEs

A new funding option is in the future for small- and medium-sized enterprises (SMEs) in the United Kingdom. New laws put forward by Small Business Minister Kelly Tolhurst this week will "make it easier for small businesses to access invoice financing," according to a release from the government. This will in turn provide a one-billion-pound boost to the economy.

"The U.K.'s 5.7 million small businesses are the backbone of our economy and central to our modern Industrial Strategy, with more than 1,000 starting up every day," said Tolhurst in the release.

Some smaller businesses accept contracts from larger firms with language stating invoice finance is prevented, but SMEs and suppliers agree to terms because of a weak negotiating position. The new proposed laws will void such restrictions in contracts entered into after the end of the year, with some exceptions.

"These new laws will give small businesses more access to the finance they need to succeed and will help ensure they have a level playing field from which to set fair contracts with the businesses they supply," concluded the small business minister.

-Michael Miller, managing editor

Job Growth Dwindles Across Businesses of All Sizes

No matter the size of the business, job growth spiraled in August across the U.S., where hiring plummeted by roughly 54,000 jobs compared to the prior month. According to a Sept. 10 report by payroll service provider ADP, only 163,000 jobs were added in August, falling well below the 206,000 monthly average and the 217,000 added in July.

Despite describing last month’s findings as “sluggish,” Ahu Yildirmaz, ADP Research Institute’s vice president and co-head, said in a statement that the business community remains strong. Hiring declined throughout businesses of all sizes; however, the ADP report states job growth in small- to medium-sized businesses (SMBs) was worse off, with less than half of its July numbers—after adding 59,000 jobs in July, SMBs added a bleak 21,000 jobs in August.

Moody’s Chief Economist Mark Zandi told CNBC the trade war is impacting larger companies because “they’re starting to become more cautious in their hiring.”

“The job market is hot. Employers are aggressively competing to hold onto their existing workers and to find new ones,” Zandi said in the article. “Small businesses are struggling the most in this competition, as they increasingly can’t fill open positions.”

Jobs in the service sector exceeded those in manufacturing, the former growing to 139,000 jobs in August, CNBC reported. Professional and business services hit a stride with 35,000 jobs, followed by education and health services, leisure and hospitality, and then trade, transportation and utilities. Meanwhile, manufacturing came in at 19,000 new jobs, with 5,000 in the construction sector.

—Andrew Michaels, editorial associate

E-Invoicing Ushers Businesses Toward More Tech Implementation

Knowing when and where to start implementing new technology is tricky for any business. Costs and complications alone often steer businesses away from the latest advancements, but some experts believe electronic invoicing adoption is one of the best stepping stones for a gradual transition into 21st century technology.

According to professional services firm EY and their Worldwide Electronic Invoicing Survey 2018, electronic invoicing, also known as e-invoicing, digitizes invoicing documentation between a supplier and a buyer. Unlike paper invoicing, which costs more than $8 per page, e-invoices widdle the price down to $0.35. The survey broke down the quantitative and qualitative advantages to e-invoicing, the former including improved productivity and cash flow.

“Together with electronic storage, e-invoicing can help to serve the corporate responsibility agenda, by eliminating the need for paper and reducing the carbon footprint,” the survey states. “These aspects can have a positive impact on the company’s image and relationships with its customers.”

In France, for example, for every 6,000 paper invoices processed, those using the technology will complete roughly 90,000 e-invoices. While paper invoices can take up to two weeks to complete, e-invoices are finished within three days, with a rate of 80% dematerialization.

From a qualitative perspective, e-invoicing limits risks of error and gives employees the opportunity to spend time on more demanding tasks. The costs and time to implement might be risky for businesses, but there are far more advantages in the long run.

—Andrew Michaels, editorial associate