Fact Pack! Arab Light
By Hightower Las Vegas and RCG Economics on September 18, 2023
“As in 1973-74, during the first oil shock when the Saudi grade was the market’s main benchmark, central banks need to watch the cost of Arab Light to judge the outlook for inflation. As thing stand, the picture isn’t pretty — and it’s getting worse.”
So says this Bloomberg commentary which also notes that there’s really no such a thing as THE price of oil. Instead, there are dozens of different measures and prices, one for each type of crude. Hightower wealth management advisor and Fact Pack co-publisher Mike PeQueen explains further:
The financial market tends to focus on two grades of oil: Brent and West Texas Intermediate, the two types traded in London and New York. Both have recently hovered around $90 a barrel — but in/for Saudi Arabia, oil is closer to $100 a barrel, which matters because of the key role it plays in the oil market: accounting for roughly one in 10 barrels sold worldwide. The pricing strategy is adding to global inflationary pressures.
As of 9/1/23
Last Wednesday, the price of Saudi’s “flagship” oil grade Arab Light rose to nearly $98.47 a barrel in Europe, according to Bloomberg. Over the last 40 years, Arab Light has traded above $100 only a few times — in 2008, between 2012 and 2014, and in 2022.
As of 9/1/23
The takeaway? Oil prices are not only high, they’re much more elevated in some regions than the Brent and West Texas Intermediate prices suggest. Just as they did in 1973-74, central banks including the Fed will need to watch the cost of Arab Light in order to assess the outlook for inflation.
What Powers the World
In 2022, 29,165.2 terawatt hours of electricity was generated around the world, an increase of 2.3 percent from the previous year. In this Visual Capitalist visualization based on data from the latest Statistical Review of World Energy, we can see what energy sources powered the world in 2022 (note that oil accounts for just 2.5 percent of global energy generation):
As of 2022
Household Earnings
A report just released by the U.S. Census Bureau shows that when corrected for inflation, the earnings of most U.S. households declined significantly last year. For households in the middle of the economic distribution, the decline was 2.3 percent, from $76,330 in 2021 to $74,580 in 2022.
In all, about seven in 10 households, representing about three-quarters of the American electorate (which we mention in light of the upcoming 2024 election), saw reduced incomes. Notably, there was no decrease in work effort to help explain the numbers. The number of full-time workers increased twice as fast as the workforce as a whole. It also was not driven by a decrease in pay, which rose on average by 4.6 percent in 2022.
It was the rate of inflation, 7.8 percent, that caused the decline, outstripping the rate of pay increases. Breakdown of the percent change in household income for various groups, via the Census Bureau:
As of 2022
Construction Worker Wages
A new report from Construction Coverage looking at states with the highest median wages for construction workers shows that during the first six months of 2023, construction spending in the U.S. amounted to $917.4 billion—an inflation-adjusted increase of 16.5 percent from the same period in 2020, when the onset of the COVID-19 pandemic halted economic activity, disrupted supply chains, and dramatically altered spending patterns.
The increased spending bodes well for construction employment, which has surpassed pre-COVID levels: As of July 2023, there were more than 7.9 million people employed in construction, an all-time high.
As of June 2023
Researchers ranked states according to the cost-of-living adjusted median annual wage for construction workers, and found that those workers in Nevada earn a median annual wage of $59,282 (after adjusting for the state’s below-average cost of living), putting Nevada 12th among states for best pay.
As of June 2023
Illinois leads the country with a cost-of-living adjusted median annual wage of $73,630. Other Midwestern states in the top 10 include:
- Minnesota ($63,390)
- North Dakota ($62,336)
- Wisconsin ($61,877)
- Ohio ($61,141).
The South has the lowest cost-adjusted wages for construction workers, accounting for all of the bottom 10 states for this ranking, with Arkansas ($44,217), Florida ($44,602), and Alabama ($45,961) providing the lowest adjusted wages for construction workers in the country.
For methodology and the full report, click here.
Rents
We’ve frequently reported on the fact that rents in most metros remain substantially higher than they were at the start of the pandemic, as do the prices of for-sale homes. Apartment List’s latest pricing report shows:
- Since March 2020, the median rent in Las Vegas has increased by 29.1 percent, while for-sale home prices are up 38.5 percent.
- As of the latest data, Las Vegas’s rents remain below that 2022 peak by 5.1 percent while local for-sale prices are 8.2 percent below the peak.
The chart below highlights the national trend. For metro-specific data, see the interactive data within the full report.
As of March 2023
UAW Strike
If you missed the news, members of the United Auto Workers union are on strike against General Motors, Ford and Stellantis, the first time in its history the organization — now 145,000 members strong — has struck all three of America’s unionized automakers at the same time.
Workers on Friday walked out of three plants – one each from the Big Three automakers – in Missouri, Michigan and Ohio. In all, fewer than 13,000 union members walked off the job, allowing the other 22 assembly plants to continue to turn out cars and trucks.
The Retirement Cliff
An aging population represents a challenge for many countries, along with decreasing birth rates and increasing life expectancies. Taken together, it places pressure on labor markets, healthcare and pension systems.
OECD data reveals how a number of countries are facing particularly rapid aging. Where the number of retirees for every 100 workers already stood at 52 in Japan and 40 in Italy in 2020, projections say they could hit 81 and 74 by 2050.
Based on 2019 data
As you can see, the U.S., UK and China have populations that are younger on average than many other nations on the Statista chart — but that will not last. Stats by continent, via the Roland Berger Trend Compendium 2050 (we’ll have more from that report later in this newsletter):
As of June 2023
EU Birth Rates
The average number of births per woman in the European Union was 1.53 in 2021, according to the latest available data by Eurostat. The figure has remained fairly stable over the last 10 years. The threshold for renewing a generation is estimated to be 2.05 children per woman. Stats from assorted EU nations:
As of 2021
Megatrends
Per the Roland Berger Trend Compendium 2050, a global trend study compiled by Roland Berger Institute (RBI), there are some interesting forces afoot in the megatrends shaping the world. Among them, growth in population in less developed countries and as mentioned earlier, the aging of the existing population:
As of April 2023
On the plus side, higher education will be more broadly available to more populations, the share of people with little to no education will decrease, and by 2050, only five nations will have a share of non-educated citizens less than 20 percent:
- Burkina Faso
- Ethiopia
- Guinea
- Mali
- Niger
Infographics:
As we have often noted and as is illustrated above, the education level of the residents of any given nation has a direct correlation to GDP.
Dollars
The “de-dollarization” of the world economy was recently thrust back into the international spotlight at the BRICS summit in Johannesburg, South Africa, in late August. The following Statista chart based on trade and transaction data for the U.S. dollar from the past 10 years shows the currency still plays a major role in international markets, though:
As of Q2 2023
The U.S. share of global GDP stands at around one quarter while the country’s share in global trade in commodities and commercial services is around 10 percent. In July, international SWIFT payments in U.S. dollars hit a new high of 46.5 percent of all payments, up more than 13 percentage points since December 2012.
(Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a member-owned global cooperative that provides secure, private financial transactions for its members, especially those doing business internationally. Banks and other financial institutions use SWIFT to expedite secure payments across the globe.)
On the Horizon
Mike PeQueen: The main event of the week will be Wednesday’s announcement by the Fed about interest rates. Most economists believe it will “pause” the rate-hiking strategy this month, particularly after last week’s modest inflation report — but one can never really be sure.
Next week’s MarketWatch report:
