Silverado! No, not the Chevy full-size pickup truck, but the precious metal Silver is up over 1% this morning!
The US Treasury 10Y-2Y yield curve remains inverted at -102.7 basis points for the 244th straight day as M2 Money YoY (aka, liquidity) evaporates.
Silver is up over 1% this morning.
Bitcoin Cash is up12.39% this morning.
Speaking of Silverado, a fully loaded new 2023 Chevy Silverado 1500 ZR2 costs around $100,000. Thanks Biden and Powell (BiPow?). Try financing that purchase with auto loan rates soaring!
Money supply growth fell again in April from Jerome Powell And The Fed, plummeting further into negative territory after turning negative in November 2022 for the first time in twenty-eight years. April’s drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years.
Yes, The Fed is printing money like it is going out of style! The war on Covid was similar to other wars fought where the US printed boatloads of money to pay for WWI. WWII, Korea and Vietnam wars. And the war against the middle class (known as The Best Depression). Apparently, The Fed is still waging war against the middle class.
US M2 Money VELOCITY (GDP/M2) is near an all-time low after The Fed went berserk with money printing to combat the Covid economic and school shutdowns.
Then with The Fed’s massive monetary expansion and sudden contraction, we have REAL average weekly earnings growth YoY in negative territory for 25 straight months.
The Walking Dead’s Negan, the poster child for The Federal Reserve.
Well, with Jerome Powell And The Fed tightening monetary policy (about half way there!), we have seen competitors to the US Dollar Bitcoin and Gold have soared since September 26, 2022. Bitcoin is up 61%, Gold is up 18% and the US Dollar is down -10%.
Mortgage rates hover around 7% as the US Treasury 10-2Y curve inverts to over -100 basis points with M2 Money growth crashed and burned.
I could have used 3 shades of Joe, but 50 shades of Joe sounds better!
But the fact remains that Americans are far more miserable under Biden than they were under Trump before the Chinese Wuhan Covid virus was unleashed. 9.03 today (Core CPI YoY + U-3 Unemployment) than it was in February 2020 under Trump (5.86). While not twice as bad, inflation is continues to cause serious problems for America’s middle class and low-wage workers.
Speaking of the middle class and low wage workers, let’s look at the Renter’s Misery index (CPI Owner’s equivalent rent YoY + Unemployment rate). It was 6.78% in February 2020 under Trump and before Covid struck and is now 11.75% under Inflation Joe.
Speaking of misery, how 25 straight months of negative REAL wage growth? Real weekly wage growth went negative in April 2021, just a few months after Biden was installed as President.
Now, there was winners under Biden. Green energy donors, the big banks, big pharma, big tech, but media … essentially any big donors from big entities got massive payoffs. The middle class and low-wage workers? As Jerry Reid once sang, “They got the coal mine and we got the shaft.”
Like a bad good news, bad news joke, the good news is that US existing home sales ROSE 0.2% in May. The bad news? Existing home sales are DOWN -23.16% on a year-over-year basis.
And the median price of existing home sales fell -3.44% YoY as inventory for sales remains missing in action (like Biden debating Democrat challengers).
Expect a hawkish Fed Chairman Jerome Powell to double down on the Fed’s commitment to vanquish inflation at his semiannual testimony before Congress on June 21-22. While the immediate audience will be lawmakers, the message will be aimed at markets, which remain unconvinced the Fed will hike by another 50 basis points, as indicated in the dot plot from the June FOMC meeting. Powell may raise his hawkish tone to push back against such views.
Even as Powell is putting on a hawkish performance, confirmation hearings for World Bank Executive Director Adriana Kugler — as well as to extend Fed Governor Lisa Cook’s term — could reinforce the dovish faction on the Fed, somewhat diluting Powell’s message.
What we expect at the June 21-22 hearings:
The updated dot plot from the June FOMC meeting shows a majority of FOMC participants anticipate at least 50 bps more of rate hikes this year. Markets aren’t convinced – as of the time of writing, futures point to a 74% chance of rate hike in July and only a 10% chance of an additional rate hike in 2023.
Powell’s main task at the testimony will be to convince markets that officials stand behind the dot plot and anticipate multiple hikes.
Powell will likely be asked why the FOMC didn’t hike in June if inflation remains a threat. He’ll say that 500 bps of hikes to date allow the central bank to moderate its pace while gauging economic conditions, and will appeal to the Fed’s dual mandate as warranting a cautious approach. That will be music to the ears of Democrat lawmakers.
Powell said a decision on whether to hike at the July FOMC meeting will be “live.” We take that to mean the bar not to hike will be high, but it’s not a done deal. Powell will likely clarify that comment at his testimony.
The published semiannual monetary policy report offers a preview of how Powell will make the hawkish case:
While the labor market is still “very tight,” it has been softening gradually — and by some measures, labor-market tightness has eased “more substantially over the past year.”
Some outside studies are arguing that wages did not contribute to or lead inflation, but the monetary-policy report notes that “prospects for slowing inflation may depend in part on a further easing of tight labor-market conditions.” Thus, the Fed still stands by the conventional economic wisdom that the Phillips Curve is well and alive – and that a tradeoff exists between inflation and the unemployment rate.
Powell will probably reiterate that low inflation is a necessary condition for achieving the Fed’s mandate, as he has many times before: “Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.”
Our view is that if inflation remains as high as the FOMC projects, it would be appropriate for the Fed to hike by at least 50 bps more. But the latest batch of indicators show some encouraging progress on goods and housing disinflation; as a result, our baseline is for inflation to fall short of the median FOMC participant’s forecast.
The Senate Banking Committee hearing on the nominations of Cook, Kugler and Vice Chair Philip Jefferson will likely be less eventful. During this period of high inflation, nominees will need to lean more hawkish in their public statements than they otherwise would.
Nevertheless, if the full slate of nominees is confirmed, it will add one more dove to the board of governors, heightening discord on the FOMC.
Jefferson’s nomination to the vice-chair post vacated by Lael Brainard won’t affect policy direction, as he’s already serving on the board. He previously was confirmed by a vote of 91-7, and we expect his confirmation as vice chair to be similarly easy.
Though we have yet to hear much from Kugler on her monetary-policy outlook, her research focus on labor markets creates a likely bias toward the maximum-employment element of the Fed’s dual mandate.
In addition to Jefferson and Kugler’s nominations, Cook — whose term is slated to end in January 2024 — would see her governorship extended for the full 14-year term. If confirmed, it would keep her dovish voice on the FOMC longer than before.
Cook, who is perceived as more dovish and more political than the other nominees — she’s a former adviser to the Biden transition team – saw her previous nomination barely confirmed 51-50, with Vice President Kamala Harris casting the tie-breaking vote. It’s unclear if she’ll have enough support this time to clear the confirmation hurdle.
Bottom line: The hearings present an opportunity for Powell to bring market pricing in line with what has been put forth in the FOMC’s Summary of Economic Projections. We are doubtful that he will succeed.
The most recent Fed dots plot suggests rate declines in future years.
Cryptos are up this morning.
Commodities are down this AM.
So, like in the film Blue Velvet, we have the choice between Michelob or Pabst Blue Ribbon. Powell is choosing …. PBR!!
Bloomberg Intelligence’s Michael Halen penned a new note titled “2H Restaurant Sales: Inflation Killing Appetites.” It outlines, “Consumer spending finally buckles under more than two years of inflation and price hikes,” and the likely result is a trade-down of casual-dining chains like Brinker and Cheesecake Factory for quick-service chains like McDonald’s and Wendy’s.
The trade-down, which could start as early as this summer, is expected to dent consumer spending in restaurants such as Cheesecake Factory, Texas Roadhouse, and at brands operated by Brinker and Darden, Halen said.
Casual-dining industry same-store sales rose just 0.9% in May, according to Black Box Intelligence, as traffic dropped 5.4%. We expect cash-strapped low- and middle-income diners to cut restaurant visits and checks through year-end due to more than two years of real income declines and ballooning credit-card balances.
Halen provides more details about quick-service restaurants to fare better than causal-dining ones as “consumer spending finally buckles.”
Quick-service restaurants’ same-store sales could moderate with consumer spending in 2H but should fare better than their full-service competitors. Results rose 2.9% in May, according to Black Box data, as a 5% average-check increase was partly offset by a 2% guest-count decline. Check- driven comp-store sales gains are unsustainable, and we think inflation and menu price hikes will motivate low- and middle-income diners to reduce restaurant visits and manage their spending in 2H. On Domino’s 1Q earnings call, management said lower-income consumers shifted delivery occasions to cooking at home. Still, a trade-down from full-service dining due to cheaper price points may cushion the blow.
McDonald’s, Burger King, Wendy’s, and Jack in the Box are among the quick-service chains in Black Box’s index.
The latest inflation data shows consumers have endured the 26th straight month of negative real wage growth. What this means is that inflation is outpacing wage gains. And bad news for household finances, hence why many have resorted to record credit card usage.
And the personal savings rate has collapsed to just 4.4%, its lowest level since Sept. 2008 (the dark days of Lehman). And why is this? To afford shelter, gas, and food, consumers are drawing from emergency funds due to the worst inflation storm in a generation.
As revolving consumer credit has exploded higher and the last two months have seen a near-record increase…
… even as the interest rate on credit cards has jumped to the highest on record.
With record credit card debt load and highest interest payments in years, plus depleted savings, oh yeah, and we forgot, the restart of student loan payments later this year, this all may signal a consumer spending slowdown at causal diners while many trade down for McDonald’s value menu. Even then, we’ve reported consumers have shown that menu items at the fast-food chain have become too expensive.
Well, not really unexpected since the housing sentiment index for home builders was above 50 yesterday. But with The Fed pausing rate hikes, housing starts are soaring!
US housing starts unexpectedly surged in May by the most since 2016 and applications to build increased, suggesting residential construction is on track to help fuel economic growth.
Beginning home construction jumped 21.7% to a 1.63 million annualized rate, the fastest pace in more than a year, according to government data released Tuesday. The pace exceeded all projections in a Bloomberg survey of economists. Single-family homebuilding rose 18.5% to an 11-month high.
Applications to build, a proxy for future construction, climbed 5.2% to an annualized rate of 1.49 million units. Permits for one-family dwellings increased.
Metric
Actual
Est.
Housing starts (SAAR)
1.63 mln
1.4 mln
One-family home starts (SAAR)
997,000
na
Building permits (SAAR)
1.49 mln
1.425 mln
One-family home permits (SAAR)
897,000
na
The figures corroborate Federal Reserve Chair Jerome Powell’s comments last week that the housing market has shown signs of stabilizing. Homebuilders, which are responding to limited inventory in the resale market, have grown more upbeat as demand firms, materials costs retreat and supply-chain pressures ease.
The housing starts data will feed into economists’ estimates of home construction’s impact on second-quarter gross domestic product. Prior to the report, the Atlanta Fed’s GDPNow forecast had residential investment subtracting about 0.1 percentage point from gross domestic product. Homebuilding last contributed to growth in the first quarter of 2021.
At the same time, elevated mortgage rates are crimping affordability, suggesting limited momentum in housing demand.
The increase in starts from a month earlier was the biggest since October 2016 and reflected gains in three of four US regions. Starts of apartment buildings and other multifamily projects jumped more than 27%.
The number of homes completed increased to a 1.52 million annualized rate. The level of one-family properties under construction were little changed at 695,000.
Existing-home sales data for May will be released on Thursday, while a report on new-home purchases is due next week.
Now only has The Fed paused, but the most recent Fed Dots Plot reveals that Fed open market committee (FOMC) members see The Fed slashing rates over the coming years. Just in time for creepy, demented Grandpa Joe to be reelected as President. In other words, the return of ZORP (zero outrageous rate policy).
Maybe The Fed should adopt the Coca Cola slogan “The Pause That Refreshes!”
While I am miserable under Biden and Yellen’s “Reign of Error,” apparently much of the USA is miserable under Biden/Yellen as well compared to the pre-Covid days of Donald Trump. 9.03% misery index (unemployment rate+ core inflation) today compared to 5.86% at the end of 2019 under Trump (before we got Fauci’d and Weingarten’d (the National Teachers’ Union President who pushed public school shutdowns)).
(Bloomberg) If a recession is going to come in the next 12 months — and most economists surveyed by Bloomberg say it probably is — then President Joe Biden should hope it begins sooner rather than later.
The last three one-term presidents — Jimmy Carter, George H.W. Bush, and Donald Trump — have all had their reelection hopes felled by an economic downturn.
But the list of presidents who survived recessions on their watch is just as long. Richard Nixon, Ronald Reagan and George W. Bush all won reelection — in the first two cases by landslides.
The difference, for the most part, is timing.
Two-term presidents get recessions out of the way early. One-term presidents have bad economic news as voters are deciding.
That means a short recession that begins soon — offering the chance for a rebound by Election Day 2024 — might be the best-case scenario for Democrats.
“The historical record suggests that a recession in the second half of 2023 would probably be less damaging to the president’s reelection prospects than a recession in the first half of 2024,” said Larry Bartels, who studies the intersection of politics and economics at Vanderbilt University. But he also said there’s not much that Biden can do at this point to change the direction of the economy in the short term.
The economic projections accompanying the Federal Reserve’s decision to hold interest rates Wednesday suggest that policymakers see less likelihood of a downturn than before. Officials’ median forecast for gross domestic product growth rose from 0.4% to 1% in 2023, with the expansion expected to pick up slightly in 2024 and 2025.
Bond traders responded to the rate decision with a signal that they’re expecting an increased likelihood of a recession in the next year.
A 65% Chance
The typical modern recession lasts 10 months, so an early, short and shallow recession would give Biden time to regain his economic footing. A late, long and deep recession could put Biden among the list of one-term presidents whose time in the White House was cut short by an untimely slump.
The consensus of economists in a Bloomberg survey shows a 65% chance of a recession in the next 12 months, up from 31% a year ago.
The same survey shows an expectation for a return to modest growth in real gross domestic product next year, with growth approaching 2%. That’s tepid in historical terms, but could be a welcome trajectory for Democrats.
“It’s not the absolute level of the economy. It’s the direction of the economy six months out from the elections that really influences the vote,” said Celinda Lake, who served as Biden’s pollster in 2020.
While they’ve largely directed their fire on each other over social and cultural issues, 2024 Republican presidential candidates have criticized Biden’s stewardship of the economy, blaming him for an inflation rate that in mid-2022 reached 9.1%, its highest point in four decades. But that spike has now ebbed to 4% in data out Tuesday.
Former Vice President Mike Pence mentioned “a looming recession” in his campaign announcement video last week, and former President Donald Trump has asserted for nearly a year that the US is already in a recession.
Biden, for his part, isn’t conceding that a recession is inevitable. “They’ve been telling me since I got elected we’re going to be in a recession,” he said earlier this year.
In a campaign speech to union members in Philadelphia Saturday, Biden touted the progress the economy has made since the pandemic recession, and said legislation on infrastructure, clean energy and semiconductors will help build for the long term.
“The investments we’ve made these past three years have the power to transform this country for the next five decades,” he said. “And guess who’s going to be at the center of that transformation? You.”
White House spokesman Andrew Bates said recession predictions “keep turning out like pollsters’ calls before the midterms: wrong.”
But in a Wall Street Journal op-ed this month, Biden also acknowledged that the US “must look out for risks and guard against them.”
Lake said that’s the right tone. “There was a time in the economic conversation when his optimism seemed out of touch with what’s going on,” she said. “Now he says, ‘I get it. It’s good but it’s not good enough.’”
‘Misery index’
Yes, the Misery Index remains elevated under Biden’s “Reign of Error” compared to pre-Covid levels under Trump.
I wonder if Biden’s proposed railroad from the Pacific to the Indian Ocean will generate massive industrial production growth? Is this more Bidenomics??
Industrial production edged down 0.2 percent in May following two consecutive months of increases. The Bloomberg Econoday consensus was a small increase.
In May, the index for manufacturing ticked up 0.1 percent, while the indexes for mining and utilities fell 0.4 and 1.8 percent, respectively.
The index for motor vehicles and parts moved up 0.2 percent in May after jumping nearly 10 percent in April.
At 103.0 percent of its 2017 average, total industrial production in May was 0.2 percent above its year-earlier level.
Capacity utilization moved down to 79.6 percent in May, a rate that is 0.1 percentage point below its long-run (1972–2022) average.
Peak Months For 5 Indexes
Industrial Production: September 2022, 103.5
Manufacturing: October 2022, 101.2
Motor Vehicles and Parts, new high this month, 112.1
Consumer Durable Goods: April 2022, 109.4
Manufacturing Durable Goods: January and April 2023: 129.8
Despite the strength in autos, no debt led by Biden’s EV push and subsidies, manufacturing production is still below where it was seven month’s ago.
A long term chart better shows the trends.
Industrial Production Index Since 1972
Industrial production data from the Fed, Chart by Mish
Recession Lead Time After Industrial Production Peak
Industrial production data from the Fed, peak calculation and Chart by Mish
Peaks in industrial production tend to mark recessions.
Industrial production and manufacturing industrial production peaked eight and seven months ago respectively.
Politically speaking, if you are going to have a recession on your watch, it’s much better to have it early in your term than heading into an election campaign. But here we are.
Inflation is still not under control, and this economy is certainly not firing on all cylinders.
Confounded Interest - Anthony B. Sanders 
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