Welcome to the wonderful world of Bidenomics, giving the US 40 year highs in inflation leading The Federal Reserve to remove its enormous monetary stimulus (known as “The Punch Bowl.”
I previously pointed out that US Real GDP was actually less than 1% year-over-year (YoY) in 2022, hardly a fantastic number given the trillions in Biden/Pelosi/Schumer spending (Omnibus, Infrastructure, etc) and Powell/Fed’s whopping monetary stimulus in 2020. But real disposable income, the amount households have left to spend after adjusting for inflation, had been falling for 7 straight months.
In fact, REAL disposable personal income peaked in March 2021, shortly after Biden was sworn-in as President in Janaury 2021 at $19,213.9 billion (or $19.214 TRILLION). As of December 2022, real personal disposable income had fallen to $15,213.0 or $15.213 TRILLION. That is a loss of $4 TRILLION since March 2021. Or a -21% Loss in Real Disposable Income.
Kansas City is a wonderful city. But the KC Fed’s Services Survey is not. In fact, it plunged to -11 for January. Rough start to the new year.
The decline in the KC Fed survery mirrors that of other regional Fed indices, indicating a slowdown in the US economy as The Fed withdraws the monetary punch bowl,
Despite the hoopla, remember that US Real GDP growth only grew at less than 1% on a year-over-year basis in 2022.
The US housing market continues to struggle as The Federal Reserve continues to fight inflation. Today’s pending home sales are another nail in housing casket.
Pending home sales declined -34.4% year-over-year (YoY) as M2 Money growth went negative (-1.3% YoY).
At least UMich buying conditions for housing increased … to 44, well below 100.
There was a hilarious film with Hillary Swank and Aaron Ekhart called “The Core” where earth’s core stops spinning and the earth gets cooked by the Sun’s rediation. Now we learn that the Earth’s inne core has actually stop spinning. This time, however, all that has happened is that Joe Biden is President which is almost as bad,
But also related to “The Core” is that the important Personal Consumption Expenditures (PCE) are out for December along with PCE price deflator numbers. In short, personal income was up 0.2% month-over-month (MoM) in December while personal spending was down -0.2%. REAL personal spending was down -0.3% MoM.
But the all important PCE deflators numbers were down all well. The REAL PCE price index (or deflator) was down to 5.0% YoY in Decmember while REAL CORE price index was down to 4.40%. All this is happening as M2 Money growth has stop spinning (down to -1.3% YoY in December).
Based on a CORE PCE YoY of 4.40%, the Taylor Rules suggest that The Fed Fund Target rate should be … 10%. However, the current Fed Funds Target rate is only 4.50%, so The Fed is not even half way there.
Fed Funds Futures are pointing to a peak rate of 4.90% by the June ’23 FOMC meeting, then a pivot (despite denials from Fed talking heads).
Of course, The Fed doesn’t follow the Taylor Rule or any other transparent rule for rate management. Rather, Fed Chair Powell like former Chair (and current Treasury Secretary Janet Yellen) follow a more seat-of-the-pants approach.
The 3-2-1 crack spread is a great indicator to gauge fuel product tightness. High spreads indicate gasoline, diesel, jet fuel, and other petroleum products are in short supply, while low spreads mean an abundance of supply. Spread direction is also important — if rising, it would mean fuel inventories are declining.
The simple calculation of refining margins is for every three barrels of crude oil the refinery processes — it makes two barrels of gasoline and one barrel of distillates like diesel and jet fuel.
On Tuesday, the crack spread hit a three-month high of $42 a barrel. For some context, the five-year January average is $15.56.
Reuters pointed out that refinery outages exacerbate fuel supply tightness.
A diesel producing unit at PBF Energy’s (PBF.N) Chalmette, Louisiana, refinery was shut following a fire on Saturday. It could be out for at least a month. Exxon Mobil (XOM.N) said Monday it will perform planned maintenance on several units at its Baytown, Texas, petrochemical complex.
The ongoing refinery maintenance season could be much lengthier than usual, with many U.S. Gulf Coast refineries still running below capacity after Winter Storm Elliott knocked out some 1.5 million barrels per day of refining capacity in December. A Suncor refinery in Commerce City, Colorado, has remained offline since the storm.
Also, the number of refinery overhauls is double the amount this spring. Many of these overhauls were postponed due to the pandemic. Some are due to record-high margins driving increased profitability for oil companies.
There are at least 15 oil refineries plan maintenance ranging from two to 11 weeks through May, tallies by Reuters and refining intelligence firm IIR Energy show. By mid-February, U.S. refiners will drop some 1.4 million barrels per day of processing capacity, double the five-year average.
“A lot of plants didn’t want to shut down last year when margins were strong, but they have to get this work done,” said John Auers, refining analyst with Refined Fuels Analytics.
Nine U.S. refineries operated by Marathon Petroleum, Valero Energy, Exxon Mobil, Phillips 66, and BP will shutter some of their fuel-producing units this spring, according to IIR and Reuters sources.
All of the outages and planned overhauls are going to make it difficult for refiners to catch up with demand as inventories are relative to historical levels.
“If we aren’t hearing the alarm bells, it’s because we’re deaf after refining margins reached eye-watering levels in 2022, when the 3-2-1 crack spread briefly surged above $60. But from a historical perspective, current margins are sky-high, as well,” Bloomberg Opinion’s Javier Blas said.
According to AAA data, gasoline and diesel prices at the pump are starting to move higher after months of declines following the rise in the 3:2:1 crack spread.
And the ‘raw materials’ for the refining process are rising rapidly…
Perhaps the victory lap was a little premature?
Mission Accomplished 2.0?
Not really. US gasoline prices are UP 45% under Biden, diesel prices (the lifeblood of the shipping industry) are UP 77 under Clueless Joe and the Strategic Petroleum Reserve is DOWN -47% under China Joe.
Falling mortgage rates are having a predictible effect on mortgage refinancing applications, but not so much for mortgage purchase applications.
Mortgage applications increased 7.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 20, 2023. This week’s results include an adjustment for the observance of Martin Luther King, Jr. Day.
The Refinance Index increased 3.15 percent from the previous week and was 77 percent lower than the same week one year ago.The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 39 percent lower than the same week one year ago.
Generally speaking, declining mortgage rates are due to declining 10-year Treasury yields. And 10-year Treasury yields decline as the economy weakens. Of course, M2 Money growth YoY is now 0% as The Fed tightens.
Three regional Fed reports I like to watch are New York’s Empire State Outlook, Philly Fed’s Outlook and Richmond Fed’s outlook. Today, The Richmond Fed released their manufacturing outlook and … it declined to -11.
So the big three are all down (Philly down to -8.9 while NY’s Empire State outlook is down to -32.9.
On the Treasury front, the US 10Y-3M yield curve inverted further (a signal of impending recession) just tanked to -126.462 basis points.
The Conference Board’s Leading Indicator should be called The Bleeding Indicator given that the leading index has declined to 10 straight months. This is happening as The Fed tightens monetary policy to combat inflation.
Leading indicators include economic variables that tend to move before changes in the overall economy. These indicators give a sense of the future state of an economy.
Confounded Interest - Anthony B. Sanders 
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