Macro Outlook Mar 2022

Summary:

Through the lens of lagged economic data, we see a picture of an economy with a tight labor environment, high consumer demand and a strong housing market. Not too many data releases last over the last month, but there was enough confirmation for the FED to begin rate hikes as expected. FED balance sheet growth has already slowed despite “the” balance sheet reduction not officially having started. We have a glimpse of current events through sentiment surveys, with both businesses and households expecting worsening economic conditions on the headwinds of inflation and geopolitical turmoil. Longer run potential effects surrounding the localization of supply chains and the “end of globabilization” would certainly be a damper on growth. However, competitive market forces shouldn’t be ignored. Similarly, concerns of an inevitable hard landing from combating inflation is mostly speculative from a data standpoint at the moment. Most concerning would be the high levels of indebtedness, from households to corporations. Coupled with diverging economic conditions between different social classes. Wage growth will be an essential metric of things to come.

Individuals and Households

Consumer loans data releases show an increase in debt levels. The trend in short term credit debt levels could be concerning. The sharp increase post-2008 recession calls into question whether subsistence requires credit facilities for most Americans today, or whether low financing rates were an attractive proposition in the last decade. Mortgage debt increases into pre-pandemic levels, revolving loans continue their decline since the 2008 housing bubble.

Housing supply growth stalls from last fall’s peak, though could be seasonal as opposed to trend. Existing home sales decline, may be seasonal as well. Current homeownership levels remain unchanged, equity continues to build for homeowners. Construction spending and material sales truck along. Price inflation in the average sales price of new homes shows renewed strength.

Employment level data shows further improvements as total nonfarm payrolls grow to pre-pandemic levels. Initial claims have normalized. Growth in self-employment slows, though this could be from a shift to more stable traditional jobs. Unemployment at 3.8% is another positive sign. Average weeks unemployed does rise in last release, though the trend is still towards normalization. Employees are still enjoying the increased mobility as job leavers continue to outpace job losers. Wage growth stalls on latest release however.

Household cash levels still high, though demand deposits dip in latest release. Total net worth still rising. Investment levels continued to rise as well.

Consumers still spending as inflationary pressures mount. Though restaurants, gasoline and auto retailers see pullbacks. Sentiment metrics down and airline travel down as well. Amount of financing for cars still increases.

Businesses

Corporate debt levels continue to rise, though general trend seems to be slowing. Sales expectations are moderating as business confront volatility in markets, however, actual sales levels still growing in last data releases. Spending continues to increase as well, shown in decreasing cash levels as well as higher numbers in real estate and capex. Sentiment is strongly down, taking hiring expectations lower as well.

Business conditions continue to stabilize as job openings and quits remain in recent ranges. Total manufacturer orders are higher, though durable goods orders drop. Inventories rise from production increases, but inventory to sales ratios still drift lower as demand weighs heavily. Transportation and freight metrics creep higher.

Banks

Bank asset growth slows as loans to some sectors decline while liabilities increase. Revenue growth in the FIRE industries remains strong.

Central Bank

FED balance sheet growth has nearly ceased, and assets in the 1-10 year duration buckets actually decrease. US monetary base declines as inflation expectations in long term moderate from corrective measures being undertaken.

Government

Middle class shrinks a bit more.

Debt as a percent of GDP still showing a decreasing trend, but foreign held debt increase. Federal budget surplus back negative.

Current account and capital account deficits grow. Net imports break two decade low. However, imports and exports have generally recovered beyond pre-pandemic levels.

Inputs and Productivity

Inputs continue to get more expensive, with spikes in oil prices showing in latest data releases. Labor market shows improvement across the board. Certain metrics, in particular in labor force participation rates are still a ways from pre-pandemic levels. Production levels increase slightly.

Leave a Comment