Macro Outlook Jan 2022

Summary:

Data shows a US recovery that is mostly past the pandemic. Certain indicators are still showing depressed levels, but recovery is undeniable. With inflation hitting wages, transitory arguments weaken, prompting a need for rate hikes. However, given the unprecedented level of both fiscal and monetary stimulus that was injected into the system, the effects of the exit plan are not as clear as it may seem. Issues such as continued inequality in the recovery, geopolitical events, and the implications of a global monetary system flush with US dollars will make the deleveraging cycle a tricky act. The cash injected in the system must generate a healthy ROI, but demographic data suggests that productivity levels may have peaked.

Individuals and Households

Consumer loan levels have eclipsed pre-pandemic levels, credit card debt has not, but that could be due to less need for borrowing with high cash levels. Delinquency rates near all time lows, could be from high savings but also loan forgiveness/deferment programs.

Mortgage levels are rising and low rates/higher savings have led to better pmt to income ratio. Delinquencies low. Housing market itself is tight. Supply is trying to increase but pandemic has led to steep decline in active inventory. Homeownership has declined in the pandemic, but those that have held on have seen sharp rise in equity. Rental market very tight again. Residential construction relatively unbothered and continuing ascent.

Private payrolls not quite at pre-pandemic levels. Initial claims getting basically there. Average weeks unemployed has gone up, peaking at 8 months this pandemic. More positive, is the labor story showing more job leavers and much fewer job losers. However, people were leaving jobs way more than getting fired ever since the 2008 recession.

Americans better off on face value of higher savings and higher net worth. Savings rate has normalized but still lots of cash on hand. The main risks are around wealth distribution. Financial assets have increased as a percentage of household assets, eclipsing dot com levels.

Consumer sentiment trending downwards again after a post-pandemic bump, started around April 21. Most likely around inflation fears. Disposable income seems to have just spiked with stimulus checks, otherwise we’re where it would have trended without a pandemic. Vehicle sales still down, more likely due to supply constraints as prices are going up. Airline passenger miles steadily recovering but still a ways from pre-pandemic levels. PCE measures have outstripped pre-pandemic levels. Generally speaking sales data seems very strong, even reversing the pre-pandemic department store trend. Tuition prices continue to rise and all of it turning into debt that is being securitized.

Businesses

Short-term debt deleveraging seems to have been happening pre-pandemic but now has been set back somewhat. Overall loan levels seem to be increasing and delinquency rates low.

Corporate profits spike after tax breaks and fiscal stimulus. Sales and sales expectations have exceeded pre-pandemic levels but have flattened going since summer ’21.

Employment spending expected to continue and corporations seem cash flush. Non-residential construction is still on growth path, but was spiking pre-pandemic and has not recovered to those levels. Capital expenditures have outstripped pre-pandemic levels on aggregate but nonfinancial firms have only just reached pre-pandemic levels. Capex expenditures also forecasting to be lower going forward, having peaked May ’21.

Job openings spiked post-pandemic selloff but have leveled out since summer ’21. Quits following similar path. US manufacturing sector took a hit in the pandemic that it may never fully recover from, given the prevailing trend. However, manufacturing orders have outpaced pre-pandemic levels at this point.

Retail and private inventories still well below pre-pandemic levels. Manufacturing inventories high however. Supply shortage vs demand most prominent in retail sector. Wholesalers next, then manufacturers still around pre-pandemic levels. Auto imbalance high as well. Shipments have recovered but overall transport index has not, implying bottleneck with overland transport. Truck tonnage still depressed while vehicle miles is back to pre-pandemic levels.

Banks

Bank residuals have largely shaken off the pandemic slowdown but have not grown much in last couple years. Commercial/industrial loans have normalized, real estate loans back on growth path. Total assets steeply higher overall. Bank liabilities seem to be increasing for the past year. Revenues are growing as delinquency rates drop to record lows.

Central Bank

Fed assets steeply higher across the board. Unprecedented levels, except in 5-10 yr bucket, where there was also a lot of support during the last recession.

30 yr BEI has leveled out. Velocity of money cratered during the Dotcom bubble and has yet to recover. Pandemic led to another dramatic decline. Fed reserve levels spiked.

Government

While the net worth of Americans has increased in general during the pandemic, the top 1% gained around 2% of the total wealth while bottom 50% gained around .7%.

Federal debt is generally higher, in line with expectations given the fiscal spending during the pandemic. Public debt as a pct of GDP is decreasing. Amount of debt held by foreigners seems to still be increasing. Interest payments are getting higher in declining/low rate environment, implying higher debt levels as well. However as a percent of GDP, payments are at a lower level than during the 1980s and 1990s.

Tax receipts have increased since pandemic, which is a little counterintuitive. Expenditures spiked, matching debt growth. Spending has stabilized however, and is now trending downward. Gross domestic investment has recovered past pre-pandemic levels.

GDP levels have recovered past pre-pandemic levels, but economic index has been trending down since summer ’21.

Current account deficit is sharply down in the pandemic. US continues to be a net importer of goods and net exporter of services. Exports of goods have recovered to pre-pandemic levels, but exports of services is still depressed. Services sector in general has not recovered as service imports down as well.

Value and Productivity

Commodity prices are up across the board. Have reached 2011 levels. Price of oil within reach of millennial highs.

Patent growth trend seems to have been accelerating since 2010.

Core employment levels seems to have hit a triple top where its now. Older population continues to work longer. Employment population ratio a ways off from 2000 peak however. Generally, employment levels with (leisure and hospitality exception) in better shape since the pandemic. Core civilian labor force has been pretty stagnant since 2000s. Gains seem to come from an older workforce delaying retirement. More and more people getting bachelors degrees. Labor force participation rate has been dropping since 2010s. Less men working, not enough woman coming into labor force to make up. Less people working multiple jobs. In terms of unemployment, pretty equal across men and women, but white Americans fairing much better than black Americans ( about twice as well), better than Hispanic Americans (1.5x) and slightly better than Asian Americans. Population growth has stalled since 2000s. Capacity utilization is doing better since pandemic but likely will continue the overall downtrend. Industrial production also has recovered but is near the triple top levels.

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