We are seeing a slowing of the US economy. For example, the JOLTs (job openings) numbers are out for June and they are down -5.5% from May. And from April to May, JOLTs declined -3.2% MoM. That is a clear slowing trend.
And on the housing front, the CoreLogic HPI Forecast indicates that home prices will increase on a month-over-month basis by 0.6% from June 2022 to July 2022 and on a year-over-year basis by 4.3% from June 2022 to June 2023. But rose +18.3% YoY in June. Also a clear cooling trend.
And its “Escape From Blue States” (perhaps a new Kurt Russell movie), with home prices rising fastest in red states (primarily The South). And contiguous migration from California to Nevada and Arizona.
The Fed Funds Futures market is pricing in rate hikes until the March 2023 FOMC meetings. After all, Prince Imhotep (aka, Minneapolis Fed’s Neel Kashkari) is screaming for more rate hikes to fight inflation … caused by 1) loose monetary policies since late 2008 and 2) insane Federal government spending.
Let’s see if “Mr. Freeze” (aka, Jerome Powell) relents on Fed rate increases before the March 2023 FOMC meeting.
US inflation, based on June’s Personal Consumption Expenditures (PCE) deflator, rose to its highest level since 1982. The PCE Deflator YoY rose to 6.8% while the core PCE deflator (less food and energy, the two things more households care about) rose to 4.8% YoY in June.
In order to fight inflation, The Federal Reserve is going to have to raise their target rate to … 17.78% based on 6.80% PCE deflator YoY. We are currently at 2.50%.
The US Misery Index remains elevated.
Based on the PCE Deflator YoY and U-3 unemployment, the misery index remains elevated compared to before Covid and The Fed’s/Federal government hyper-stimulypto to counter the Covid economic shutdowns. We never fully recovered.
S&P 500 2023 EPS expectations falling off a cliff (orange line).
My former colleague at Deutsche Bank, Joe Carson, said recently that the US economy is not in a recession, but corporate profits are in a recession. While I cling to the traditional definition of recession (two consecutive quarters of negative real GDP growth), there is another component of the US economy that is in recession: consumer sentiment.
The University of Michigan Consumer Sentiment Index rose slightly in the latest release, but remains depressed at 51.5. University of Michigan Buying Conditions for House also rose to 47.0, also a depressed reading.
While unemployment remains low, the price of gasoline is crushing the wallets of American households helping to cause a recession in consumer sentiment.
Biden feebly attempts to explain why 2 consecutive quarters of negative real GDP growth (better known as contraction) is NOT a recession.
The May Case-Shiller home price indices are out and they’re a doozy. The national home price index rose 19.75% YoY. Why? You can thank The Fed’s “slowhand” approach to withdrawing the Covid-related stimulypto.
Where are home prices booming? Everywhere.
Miami, Tampa, Dallas and Phoenix (red states) are growing at over 30% YoY. Boston, Chicago, Cleveland, Detroit, Minneapolis, New York, Portland and Washington DC (blue states) are all growing at over 10% YoY. Cleveland is a blue city in a mostly red state while San Diego is a red city in an almost blue state.
Jerome “Slowhand” Powell is not shrinking The Fed’s balance sheet.
Just remember, the US economy had strong employment figures just prior to the 2008 Great Recession and financial crisis, so US Treasury Secretary Yellen, Biden’s economic cheerleader Bernstein and Obama’s economic cheerleader Sperling are all relying on a bad indicator of economic health to justify that the US economy is in great shape.
(Bloomberg) — Treasury Secretary Janet Yellen expressed confidence in the Federal Reserve’s fight against inflation and said she doesn’t see any sign that the US economy is in a broad recession.
“We’re likely to see some slowing of job creation,” Yellen said on NBC’s “Meet the Press” on Sunday. “I don’t think that that’s a recession. A recession is broad-based weakness in the economy. We’re not seeing that now.”
With US consumer prices rising at the fastest rate in four decades, a growing number of analysts say it will take a recession and higher joblessness to ease price pressures significantly. The Federal Reserve raised rates in June by the most since 1994 and is expected to approve another 75 basis-point hike this week.
Inflation is “way too high,” Yellen said, while renewing the Biden administration’s argument that it’s also high in many other advanced economies.
“The Fed is charged with putting in place policies that will bring inflation down,” said Yellen, a former Fed chair. “And I expect them to be successful.”
Dammit, Janet. All of Biden’s anti-fossil fuel orders are still in place and Biden/Pelosi/Schumer are still trying to pass the highly-inflationary Build Back (Inflation) Better bill. And The Fed still has not shrunk it massive balance sheet yet.
But Janet, the US Treasury 10Y-2Y yield curve remains inverted (historically ahead of a recession) while the Atlanta Fed GDPNow Q2 tracker is at -1.6% which would make the second quarter in a row of negative real GDP growth in a row (historically a definition of recession).
My preferred 10Y-2Y chart shows the yield curve more inverted than even prior to The Great Recession!
But in Yellen’s defense, The Fed’s preferred yield curve (implied yield on 3-month T-Bills in 18 month – 3 month T-Bill yield) is still positive, though crashing like a paralyzed falcon.
So, the Biden administration is sticking to the strong labor market story. But what the Biden Administration (and Yellen) fail to acknowledge is 1) unemployment is a lagged indicator of a recession (unemployment was low prior to the 2008 GREAT recession, then exploded and 2) there is still a tremendous amount of monetary stimulus outstanding that The Fed has taken away … yet.
Essentially, the Biden Administration is panicking over the coming mid-year election and will say anything at this point to stay in power. So, I would probably ignore anything said by Biden, Yellen and their talking heads before the midterms elections. But when Biden’s economic advisor says that the US economy is strong, I want to ask him how having NEGATIVE wage growth is a good thing,
Let’s see if Yellen is correct and The Fed’s Fireball will tame inflation. Frankly, I think the global slowdown is the only thing that will tame inflation.
Mortgage applications declined for the third week in a row, reaching the lowest level since 2000.
Mortgage applications decreased 6.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 15, 2022.
The Refinance Index decreased 4 percent from the previous week and was 80 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier. The unadjusted Purchase Index increased 16 percent compared with the previous week and was 19 percent lower than the same week one year ago.
Heartache #1: Mortgage rates have risen 99% under Biden.
Heartache #2: Mortgage application have fallen -71% under Biden.
As The Federal Reserve continues to fight inflation caused by 1) excessive stimulus by The Federal Reserve and Federal government surrounding Covid and 2) Biden’s energy policies, we are seeing the mortgage market as collateral damage.
The US is short on supply of housing for a myriad of reasons (high costs, Not-in-my-backyard (NIMBY) local zoning laws, etc), but The Fed’s cranking up interest rates isn’t helping.
US housing starts, a measure of supply, declined -6.3% YoY in June as The Fed cranked up rates.
1-unit (aka, single family detached) starts dropped -8.05% MoM in June while 5+ unit (aka, multifamily) starts rose 15% MoM.
1-unit permits dropped -8% MoM in June while 5+ unit starts were up 13% MoM.
The reason? REAL weekly earnings growth declined -4.4% YoY in June thanks to Bidenflation.
As The Fed Reserve prepares to raise their target rate in a week by 75 basis points to 2.50%, the NAHB Home Builder’s confidence index plunged.
The 30-year mortgage rate is up 89% under Biden as his green energy fiasco is helping drive inflation to its highest level in 40 years leading The Fed to tighten its monetary policies.
Confounded Interest - Anthony B. Sanders 
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