Macro Outlook October 2022

Summary:

Not much change in narrative month over month from macro basis. We are starting to see more clearly where the basis of next recession might form. Borrowing rates are sharply higher, but consumer credit continues to expand, and there is the question of when this might become out of necessity and not from wealth increases. Debt levels across the world will once again become relevant in today’s interest rate environment. The housing market continues to be the strongest real economy sign of an impending downturn as housing inventories rise and prices decline. The surplus of consumer cash has been drawdown, and retailer inventory ratios are reflecting this, particularly in the auto sector. Metrics of supply chain activity down as well. However, the backdrop of a tight labor market still has not faded. Initial claims are starting to trend higher, but net unemployment has decreased again. Perhaps the demographic shift that is occurring will force inflation to be resolved against a generational trend in labor demand. Consumer spending also remains robust, and PCE levels once again beat expectations. Though there are scenarios for a bit of easing in this hiking cycle, it will be hard to say which metric would be the pivotal source of evidence the FED would lean on to justify such a move.

Individuals and Households

Consumer borrowing rates increase in 3rd quarter, with credit card rates up 7.5% and personal loan rates up 16.4%. Revolving credit levels still increase WoW, up 1.4%. Total consumer loans outstanding increase MoM, up nearly 1%. Total real estate loans up 0.6%, while revolving home loans are up nearly 1% as well.

Supply of housing increases in September, up 13.6%. Active listings decrease by 6%. Existing home sales down 1.9%. Privately owned housing units started down 8.6%, while total residential construction spending down a more modest 0.8%. Cash-Shiller housing price indices see regression. 20-city composite down 1.6% while National Home Price index down 1.2%. LA sees a 2.2% decline while NYC drops 0.5%. Average sales prices for new houses sold down 0.8%.

Initial claims higher again up 12.4%. Unemployment levels still down in third quarter dropping 5.4%. Average weeks unemployed still down 9.4%. Job leavers continue to outpace job losers, with leavers up 4.6% while job losers down just about 5%. Average hourly earnings see some more growth up 0.3%. Median weekly real earnings up 0.8%.

Consumer savings decline across the board. Demand deposits down 1%, and total deposits at banks drop 1.3%. Personal savings drops a further 11.4%.

Consumers continue to generally spend. Michigan Consumer Sentiment Index improves slightly up 0.7%. Real disposable situation improves up 0.3%. Urban CPI index up 0.4%. Total vehicle sales up 2.7%. Personal consumption expenditures up 0.8%, and up across all the categories as well. Retail sales generally up, though restaurants and gasoline stations down 1.5% and 5% respectively.

Businesses

Commercial paper outstanding up 5.7%. Business sales growth expectations down 4.6%. Manufacturer sales and total sales up 0.4% and 0.2% respectively. Employment growth expectations up nearly 5%, while total nonresidential construction spending in the US up 1.4%. CAPEX spending expectations down 40%.

Total nonfarm openings down 11%. Quits even. Business applications in the US down 3%. Total manufacturing new orders down 0.2%, durable goods orders up however 0.8%.

Retail inventories up 1.2%. Retail inventories to sales ratio also up 0.8%. Manufacturer inventories are down 0.2%, and ratio is down 0.7%. Auto inventories to sales ratios are up 27%. Cass Freight Index for shipments is down 2.9%, and the total transportation index is down 0.4%. Truck tonnage is also down 2.5%.

Banks

Bank cash assets down 0.2%. Residual assets are 2.2%. Commercial and industrial loans are up 0.5%. Total assets at commercial banks are down 0.26%. Total liabilities are down 0.26%.

Central Bank

Securities held outright by the FED down 1.1%. Declines the greatest at the on the short end of the curve. Total reserves down 5.3%. M2 velocity slightly increases up 3.7%. Total monetary base down 3%.

Government

Federal government expenditures on interest payments up 23%. Federal deficit basically doubles. Gross domestic investment down 0.3%. Trade balance down 4.6% on balance of payments basis.

Inputs and Productivity

Commodity PPI gains 0.1%. Regular gas prices up 1.6%. WTI crude up 11.6%.

Labor force participation rate drops 0.2% on the strength of a 0.5% decline in female labor force participation. Males see a 0.4 increase in participation rates. Employment level and civilian labor force levels do grow a bit in the 55+ age group, but the trend remains to be generally declining.

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