Macro Outlook July 2022

Summary:

Primary narrative continues to be inflation. The FED continues to fight inflation with rate hikes, and markets pricing in FED capitulation sometime in early 2023. While inflation seems unaffected so far, economic growth has slowed. Consumer credit growth is slowing, certain spending areas are declining, and savings are going back up. Both business and consumer sentiments continue to be poor. However, with current employment levels, FED still has significant headroom to operate.

Individuals and Households

Starting with consumer financing, credit card rates up 4% since Feb 2022. However, revolving loan levels up 2.6%, and total consumer loans up 1.4%. Total residential real estate loan levels up 1.10% and home equity loans show a turnaround with a 0.2% uptick.

Current paradigm in housing markets is of a slowdown. Supply of houses up 21%, active listings up 20%. This in contrast to only 0.7% growth in housing starts, implying demand slowdown not new supply. Though total residential construction spending up 5.2%. Existing home sales continue to contract, down 5.4%, and average sales price for new homes drop 10.7%. The extent of the slowdown still seems moderate though, as most other metrics of home prices still increased. Case-Shiller indices all up, with the National Index clocking 4% price appreciation. Average sales price for all homes sold up 3.4% as well.

In labor markets, initial claims rise 11.8% this week. No change in unemployment rate however. Average weeks unemployed down another 0.9%. Rate of job leavers up 9.4%, while job losers down 2.6%. Job losers significantly larger proportion of total unemployed though. Mixed wage data continues due to inflation as average hourly earnings show growth of 0.4% while median weekly real earnings down 1.1%.

Consumers cash levels rise, with 4.6% growth in demand deposits, and 0.1% growth in total deposits at commercial banks. Personal savings rates also back up 16%, perhaps in anticipation of future economic hardship.

Looking at consumption, we start off with sentiment index down 14.4%. Disposable personal income down 0.3% while total CPI up 1.32%. Consumer spending broadly remains at level or sees small increases, though slowdown occurs in several categories. Total vehicle sales up 2.6%, air travel miles up 4.8%. Personal consumption expenditure up 0.7%. Retail sales drop 0.3%.

Businesses

Total CP outstanding up 0.5%, though both non-financial and financial CP levels decline, 1.27% and 0.5% respectively. Commercial real estate loans up 1.4%. On the income side, sales revenue growth expectations crater 21%. However, current manufacturer sales and business sales up 2.3% and 0.8% respectively. On the spending side, employment growth expectations down 50.4%. Total non-residential construction spending down 1.4%. CAPEX spending expectations index goes from slightly positive to very negative.

Job openings down 1.3% and quits down 3.5%. Business applications down 2.7%. Manufacturer’s new orders still sees growth, up 1.9%.

Retail inventories grow 1.2%, real private inventories up 1%. Retail inventory to sales ratio up as well, 1.7%. Manufacturer inventories up 1.5%, but inventory to sales down 0.7%. Final demand PPI up by 3.2%. Shipments down 2.6%, truck tonnage down 1.7%.

Banks

Bank cash assets up 3.8%. Commercial and industrial loans up 2.4%, real estate loans up 0.6%. Total assets up 1.2%. Total liabilities up 1.33%. Bank residuals up 11.3%.

Central Bank

Central bank balance sheet contracts 0.5%. Depository reserves down 10.7%.

Government

Federal expenditures on interest payments up 6.8%. Federal deficit increases 34.2%. Total expenditures up 5.3%. Exports of goods up 1.3%, exports of services up 0.5%. Trade balance deficit increases 1.8%.

Inputs and Productivity

Commodity prices up 3.4%. Global energy index up 2.6%. Gas prices down 13.5% in the US. Global price of food index up 1.55%.

Civilian labor force level drops 0.2%. Labor force participation down 0.2%.

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