Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.
o The credit rating of the United States was downgraded by ratings firm Moody’s, as the agency determined that the government’s rising debt levels would continue to grow if Republicans enact a package of new tax cuts. The downgrade to the level below the highest triple-A rating means that all three credit rating agencies no longer give the United States its best rating. Standard & Poor’s downgraded its rating for the country in 2011, while Fitch downgraded the US credit rating in 2023.
The impact of the new credit rating could send ripple effects throughout the economy if investors demand higher payments on bonds, which could raise the consumer’s borrowing costs. Despite the downgrade, Moody’s continues to acknowledge the US financial system as stable, with the dollar strong and reliable. [The New York Times]
o For the travel and leisure industries, 2025 has become a year of uncertainty. Foreigners are canceling trips to the United States in response to the deep threat of President Donald Trump’s steep tariffs on US trade partners. Americans are cutting back travel due to fears of a recession and job security. Travel from Canada has dipped in three consecutive months with April 15.2 percent less than April 2024. While travel is down sharply for Canadians traveling to the United States, it is more pronounced than other international arrivals.
As a response, airlines have reduced air fares due to softening demand. Hotel chains Marriott, Hyatt and Hilton are also experiencing slowing growth and have lowered revenue outlooks. While Airbnb and Expedia are also experiencing a decline in bookings. As a result, the tourism industry is projecting a $12.5 billion drop in travel spending this year, falling to less than $169 billion this year compared to $181 billion in 2024. The United States is the only country among the 184 analyzed that is forecasted to see an international visitor drop in 2025. [The New York Times]
o The demand to ship Chinese-made goods to the US has caused an increase in costs for importers racing to have cargo delivered during the three-month trade war truce between the United States and China. Rates have climbed eight percent in the last week as bookings have increased. A shipping container from Shanghai to Los Angeles could cost over $3,000 per 20-foot unit.
The rollback in tariffs has moved forward the industry’s peak season, which typically aligns with back-to-school and holiday shopping during the months of July to October. Analysts project that shipment rates could approach Covid-era rates of $20,000 over the next three months. [The Wall Street Journal]
o With interest rates stuck near seven percent, demand from first-time home buyers has hit record lows. Even with construction companies, such as D.R. Horton and Lennar offering better rates through their own lending arms aren’t drawing demand from first-time home buyers. Builders now have more completed but unsold homes on lots than at any time since 2009.
People buying their first homes in the existing market are more than a decade older than historical norms, at 38 years of age. That’s because they had to wait until they were older and had higher incomes for homeownership to be affordable. Their median household income has shot up to $97,000 and last year they averaged a 9% down payment. Meanwhile, the share of first-time home buyers in the existing homes market is at a record low. [The Wall Street Journal]
o The traditional customer base for McDonald’s says that the fast-food icon has become too expensive. In the chain’s latest quarterly earnings, it has become apparent that customers are opting for other chains that they deem to be better value, such as Taco Bell or Chili’s. Sales at McDonald’s dropped 3.6 percent at US locations year-over-year, the worst performance since the height of the pandemic. In addition, visits from low-and-middle-income consumers dropped nearly 10 percent.
The price gap between fast-food, fast-casual, and sit-down restaurants has become more muddled in recent years, making it harder for diners to spend a similar amount at McDonalds that they would at a fast-casual chain. The average price for a McDonald’s menu item has increased by 40 percent from 2019 to 2024, which the company has blamed on rising costs. In addition, other chains have questioned McDonald’s perceived value. [The Washington Post]
