Macro Outlook June 2022

Summary:

While financial markets swirl from headline to headline, underlying economic data remains slow to materialize the fears that are driving daily price action. Consumer spending continues to increase and while some employment levels like initial claims flash, total unemployment remains low. Business and consumer sentiment is still unfavorable, but business capex and employment spending expectations are back on a growth path. Inflation remains the biggest threat, with perhaps the most worrying trends from this set of data release being the extreme decline in personal savings of individuals. Combined with ever increasing housing prices, wealth creation for younger generations will be a prevalent topic for the foreseeable future.

Individuals and Households

Consumer loans barely expand in the last couple months, and there are hints in the lagged delinquency data that individuals may be overindebted, with credit card delinquencies rising 6%.

Real estate loan levels continue to expand, up 1.49%. Debt service as a percent of disposable income continues to grow. Mortgage delinquency rates sharply down 8% as of lagged data release.

Housing supply up 20% since March, and listings up 35%, showing signs of a cooling market. Home sales down 6%. On the flip side, housing starts are down 13% and real estate construction up a relatively modest 4%, though overall trend stays steep. Cooling market has not cooled prices, with March Case-Shiller composites showing price appreciation between 2%-3.5% month over month. More timely housing market releases do show some price depreciation, with average sales prices of new homes in the US down 2% in May.

US employment metrics look a little worse off, with non-farm payrolls basically stagnant since March, and initial claims up 27% since the end of April. Unemployment level unchanged since March though, and average weeks unemployed continues to decrease, down 7%. Job losers continues to drop as well, down nearly 2% since March. Average hourly earning growth stalls a bit with a 70 bps increase.


Household savings and investing down in more recent data releases. Demand deposits down 1% between March and April, and personal savings down 30%, now back to 2008 levels. Household net worth down nearly 1%. Investment levels down 6%.

Consumer sentiment continues to trend down, with UMich survey showing a 1.68% drop since March. Disposable income is down 1%, while urban CPI up another 1.3%. Total vehicle sales down 4% in May, perhaps more due to continued supply constraints, though average car financing amount seems to have stabilized. Spending seems to remain strong as of April data from latest round of releases. Personal consumption expenditures up around 1%. Air travel up 13%. New car sales was up 12%. Restaurant sales up 23%, and ecommerce back strong with a 14% increase. Department store sales do trend down 6%.

Businesses

Commercial paper outstanding grows 3.53% since April. Commercial real estate loans up 1%.

Corporate profits were still growing as of latest data release, up about 1.5%. More recent data shows that revenue growth expectations are down 2%, with manufacturer sales down 1.66%. Total business sales up about 50 bps.

Employment growth expectations is still up 5%. Total non-residential construction spending is basically unchanged, indicating most of the construction spend is from residential demand. Capex spend was still increasing as of last release. Chicago Fed Survey shows improvement in capex expectations since February.

Job openings 1.2% higher in April vs February. Vacancies up 1.2% as well. Business applications down over 17% however, and Manufacturers’ New Orders down -1.62%.

Inventories generally show positive trends between February and April data releases. Retailer inventories up 4.55%. Manufacturer inventories down at 1.44% but manufacturer inventory to sales ratio increases 3.5%. Auto inventory to sales decreases nearly 3%.

PPI increases 2.5%. Shipment activity up 2.66%. Total transportation index up nearly 4%. Vehicle miles travelled up 11%.

Banks

Cash assets down 3%, bank residuals are down 3.35%. Loans continue to expand. Commercial and industrial loans up 3%. Real estate loans up 2%. Total bank assets unchanged from April to June, total liabilities down about 70 bps.

Central Bank

Central bank assets remain relatively flat. Short term assets decline just under 4%. Mid and long term assets increase by 1.2% and 1. 7% respectively.

Monetary stock contracts, with a 6.7% decline in central bank reserves. Total monetary base shrinks by 4%.

Government

Total federal debt ticks higher and budget deficit rematerializes. Tax receipts up 9% since March.

Current account deficit widens by 34%. Capital account deficit up 10%. Trade balance overall down 2.4%.

Inputs and Productivity

Commodity PPI up another 5%. Gas prices in US All Formulation index hits $5. Global food index up 2% as of latest release, dated in April.

Increase in job seekers, 17% increase in men actively looking for a job since March. 8% for women.

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