Macro Outlook August 2022

Summary:

Inflation softened somewhat in July 2022, prompting hopes of a FED pivot. 12-month PCE dropped back to 6.3%, from our peak levels (so far) of 6.8%. The FED’s target inflation level is 2%. Some tailwinds for a inflation levels dropping are unfortunately headwinds for economic growth. In this month’s releases, we see slowdowns in US housing markets. Consumer land delinquencies experience another uptick. Retail inventories to sales increased. However, in line with the FED chairman’s speech at Jackson Hole on Friday, it is hard to see these symptoms shift policy given how tight the labor market is, the FED’s only other mandate outside of job stability. The latest data shows unemployment at 3.5%, still decreasing month over month. Spending has not yet collapsed, though it has shifted (due in fact, to inflation). And housing prices for new homes sold are still increasing given the dramatic shortage we are facing in the US. To further tighten the shelter market, rental vacancies low levels unseen in 40 to 50 years. Furthermore, many of the current inflationary geopolitical events are still unresolved. Given the headroom the FED has to continue taming inflation, it would be hard to see a pivot so soon.

Individuals and Households

Consumer revolving debt levels up nearly 1% since end of July, and total consumer loans up by a half percent. Debt levels above pre-pandemic levels. Delinquency rates are up as well though, up 4.5% for revolving debt and nearly 5% for all consumer loans. Delinquency rates still well below pre-pandemic levels.

Residential real estate levels up 0.25% while revolving residential loans up 0.16%. Mortgage delinquency rates declined nearly 8%.

Monthly supply of housing up 17%, active listings up 21% in the US. Existing home sales declined 6%, privately owned housing starts down 7%. Rental vacancy rates continue to constrict, down 3.5%. Total construction spending has declined 1.5%. Despite the reduction in activity, average sales price for new homes up 20% in July, though overall trend is becoming more volatile.

Unemployment level declines another 2.8%, getting well beyond historical full employment assumptions. Average weeks unemployed decreases almost 1%. Job leavers up 5.1%, dominating growth in job losers as a percentage of total unemployed, up only 0.7%. Average hourly earnings of private sector employees up 0.6%.

Consumer sentiment up 3% in July. Real disposable income up 0.3%. Urban CPI down 0.2%. Vehicle sales up 2.6%. Passenger miles up 0.2%. Personal consumption expenditures up 0.3%. Retail sales breakdowns mixed. Department stores down 2.4%, restaurants down 2%. Gas stations up nearly 2%, while e-commerce sales up 3%.

Businesses

Business CP outstanding up 4%. Commercial real estate loans up 1.2%. Corporate delinquencies down 2.8%.

Corporate profits after tax up almost 10% after Q1. Sales growth expectations down 11%. Manufacturers sales up 1.4%, total business sales up 1.6%

Employment growth expectations down 16%. Nonresidential construction spending down 0.4%. Capital spending expectations survey up 73%.

Non-farm job openings down 5%. Quits unchanged. Business applications down 4.6%. Total manufacturing orders up 2.2%.

Retail inventories up 2.4%. Retail inventory to sales up 0.8%. Manufacturer inventories up 0.5%, manufacturer inventory to sales down 1.4%. PPI at finished goods level down 2%. Cass Freight shipments index down 1.8%. Truck tonnage up 0.8%.

Banks

Bank cash assets up 1%. Bank residual up 0.8%. Total bank assets up 0.2%, total liabilities up 0.1%. Delinquency rate on all loans down 4%.

Central Bank

Total FED assets held outright decline by 0.6%. Assets with maturities over 10 years increased by 1.1%. Total monetary base increases by 0.6%.

Government

Total public debt as a percent of GDP decreased 1.5%. Federal budget deficit increases 137%. Trade balance on goods and services up 7%.

Inputs and Productivity

US regular all formulations gas price decreased 10%. Global price of food index down almost 13%.

Labor force participation rate down 0.2%

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