Zacks Investment Management

In this week’s edition of Steady Investor, we dive into recent market dynamics influenced by significant events, including:

• U.S. government shutdown looms
• Americans feel the sting of higher rates
• Working a 4-day workweek

A U.S. Government Shutdown Looms – In a story that seems to get written every six to twelve months or so, the U.S. government is at risk of shutting down due to disagreements over spending bills. Congress holds the purse strings for U.S. government spending, which means they must pass – by majority vote in both the House and the Senate – a bill to fund the government. This week, the Senate passed a bipartisan short-term funding measure that the House of Representatives refused to put on the floor for a vote, as Speaker Kevin McCarthy acquiesced to the demands of the Republicans in his chamber. If brought to the floor for a vote, the Senate bill would likely pass, as it would garner a mix of Republicans and Democrats voting in favor. Instead, the House is working on its own version of the funding bill, which is likely to keep the two chambers pretty far apart. The House appears to be poised to vote on a stopgap measure that would cut spending to an annual $1.471 trillion rate, which would not include any more money for Ukraine or disaster relief. The House bill would also include strict border security measures. On the Senate side, spending would continue at the $1.6 trillion annual pace, with $6 billion in additional aid for Ukraine and another $6 billion for disaster relief. There were no additional measures for border security. The Senate appears to be willing to add some measures for the border, but they are not likely to budge on Ukraine and disaster relief. That leaves the House with a difficult needle to thread. If a bill is not passed by Sunday, certain agencies will shut down temporarily, which from a market and economic perspective could mean the released delay of economic data on wages, inflation, and GDP.¹

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U.S. Borrowers Feel the Sting of Higher Rates – Two years ago, Americans looking for a house could benefit from a 3% rate on a 30-year fixed mortgage. Today, most 30-year mortgages carry rates around 7%. The same jump in rates is happening across markets for loans, from autos to credit cards. The National Association of Realtors estimates that the typical American family – with a median household income – cannot afford to buy a home in the current market. In the auto loan market, it is estimated that Americans now need about 42 weeks of income to buy a car. Three years ago, it was just 33 weeks. Credit cards have seen a similar jump, with the typical card carrying a 20.7% annual rate today versus a 14.6% rate in February 2022. For Americans who need to borrow, this environment is making it challenging to spend. But it also remains true that most Americans are not feeling a major burden because many mortgages and auto loans were locked in when interest rates were far lower. That’s why, as seen in the chart below, debt service (interest) payments as a percent of disposable income remains quite low in the aggregate, even though it jumped from 2020/2021 lows.³

Time to Embrace the 4-Day Workweek? – In Europe, the 4-day workweek is quite common, but not in the U.S. That could be changing now. Hundreds of employers are testing schedules and conventional ways of working – as evidenced by the shift to hybrid and remote work – and now also by trying out the four-day, 32-hour workweek. In the tight U.S. labor market, employers are seeking ways to keep employees happier, healthier, and more loyal. Offering a shorter workweek surely factors as an attractive benefit, but for employers, it also requires quite a bit of work and planning. That means cutting meetings, shifting employees off of email, and having them focus on just core elements of the work, and also doing more tracking – using reports from badge systems and work software to keep track of how long people are working.⁵

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