The Ravages Of Inflation: US Consumer Credit UP 7.9% YoY In November While Personal Savings Collapses -64.8% YoY

As we are painfully aware, inflation is still high at 7.1% Year-over-year (YoY). To cope with inflation, consumers have been gutting their savings and increasing their use of credit. In November, consumer credit increased 7.9% YoY while personal savings fell -64.8% YoY.

The good news? Inflation month-over-month is expected to be 0% tomorrow.

So, inflation will be gone in November?

Small Business Optimism Index Plunges Below 90 As Fed Tightens Money With M2 Money Growth YoY Hitting 0% (Baltic Dry Index Continues Downward Descent)

The NFIB Small Business Optimism Index is plunging and just fell below 90. The index was above 100 before the Wuhan virus outbreak in 2020, but has only been at 100 or above for only two months under Biden. And the trend is definitely looking bleak as The Federal Reserve fights inflation with M2 Money growth having collapsed to 0% YoY growth.

And the Baltic Dry shipping index is falling with M2 Money growth YoY.

I wonder what Fed Chair Jerome Powell is thinking?

Zoltan! Fed Will Restart QE to Stabilize Treasury Market During Summer 2023, Credit Suisse Group’s Pozsar Says

Zoltan!

The Federal Reserve will be the backstop of the Treasury market this year to alleviate dysfunction resulting from its increasing size and the retreat of regular buyers.

That’s the view of Credit Suisse Group AG analyst Zoltan Pozsar, who in a note to clients Friday predicted the Fed will restart asset purchases during the summer of 2023.

In Pozsar’s analysis, relative-value funds won’t buy Treasuries unless they cheapen a lot relative to overnight index swaps, and banks with sagging reserves are more likely to tap the funding markets than to buy Treasuries. FX-hedged buyers have been “priced out,” and geopolitical events have reduced large reserve managers’ appetite for US debt, he said.

Flagging demand from marginal buyers will depress demand for Treasury auctions, sparking selloffs in equities, credit and emerging markets, according to Pozsar.

“This is a ‘checkmate-like’ situation,” he wrote. “The Fed won’t be a pivot and the terminal rate may have to go higher still, neither of which augurs well for either risk assets or Treasuries.”

As The Fed started to raise rates (yellow line) to fight inflation (blue dashed line), the S&P 500 index started to fall. Note that The Fed’s balance sheet (purple line) is mirroring the inflation rate.

Fed Funds Futures point to Zoltan’s reversal in June 2023.

Will The Fed pivot? Zoltan says yes, the talking Fed heads say no.

A rare glimpse into The Fed’s open market committee meeting.

Or more explicitly, “Hail Fed” or “Hail Zorp” (Zero interest rate policies (ZoRP)).

Coping With Inflation? US Personal Savings Declines -64.8% YoY In November As M2 Money Growth Falls To Lowest In History (0% YoY)

US headline inflation began to soar as soon as Joe Biden became President. A combination of massive stimulus spending related to the Covid economic shutdown and his war on fossil fuels, driving up gasoline and diesel fuel prices. In other words, headline inflation rose from 1.4% Year-over-year (YoY) at the end of December 2020 to 9.1% YoY in June 2021. It has now simmered down to 7.1% YoY as The Fed continues to remove monetary stimulus.

How have consumers coped with inflation caused by massive Federal spending and Biden’s anti-fossil fuel policies? In November, personal savings dropped -64.8% YoY. This marks 20 straight months of declining personal savings.

US M2 Money growth YoY is now … 0%. That is the lowest in US history.

Wow, when The Fed puts its foot on the brakes, …

Jobs And The Inflation Tax: December Jobs Report Add 223K Jobs, But Wage Growth (4.6% YoY) Is Still Lower Than Headline Inflation Rate (7.1%), Avg Weekly Hours Employed Falls To 34.3 (Full-Time Workers -1K; Part-Time Workers +679K)

The December jobs report is out and the top-line number is … 223k jobs were added. That is strong enough to give The Federal Reserve the green light to raise rates.

But while it was a good jobs report, it shows the inflation tax in full view. Hourly wage growth year-over-year (YoY) was 4.6% in December. Unfortunately, the inflation tax was 7.1% in November. If we assume that the inflation rate in December is the same, the REAL hourly wage growth was -2.5% YoY.

But it is likely that headline inflation cooled a bit in December as The Fed continues tightening. But unless headline inflation cooled to 4.6% YoY, the inflation tax is positive and destructive.

The average weekly hours employed fell to 34.3 while U-3 unemployment rate fell.

Here are the rest of the numbers.

The most glaring data point is Full-Time Workers -1K; Part-Time Workers +679K.

And the leading indicator for unemployment is ticking up.

ADP December Report: 235k Jobs Added (Good), But Annual Salary Growth Slows To 7.3% YoY For Job Stayers (Fuel For Fed To Keep Tightening)

December’s ADP jobs report is out and it is a good news. bad news type of report.

First, the good news. 235k jobs were added in December.

Now for the bad news, job stayers saw their annual salary growth fall to 7.3% Year-over-year (YoY).

But while job growth remains good (which will allow The Fed to keep raising rates), the trajectory in the pink box is slowing.

The breakdown from ADP.

How about US Services PMI Business Activity SA? Do I detect a trend??

The Fed’s Dot Plot from December is still pointing to a pivot in 2024.

Devil’s Tower? ISM New Orders Slump To 45.2 In December As ISM Prices Paid Slumps To 39.4 (Stimulus Is Already Gone, Recession In Sight)

To paraphrase The Eagles, US monetary stimulus is already gone.

And with it, ISM Manufacturing Report for December is showing weakness. New orders (orange line) is down to 45.2 (below 50 is contraction) and the prices paid is down to 39.4 (white line). All this is happening as The Fed raises its target rate (yellow line) and removes monetary stimulus (green line).

This gives us “The Devil’s Tower” looking economic spike after massive Covid-related monetary stimulus and Federal government repeated stimulus.

Biden is probably hoping for MORE stimulus, like in Close Encounters of the Wrong Kind.

Speaking of Already Gone, look at the US Treasury 10Y-2Y yield curve with slowing M2 Money growth. Yield curve inversion is more about vanishing M2 Money growth than it is a forecast of recession.

Mortgage Applications Dropped To Lowest Since 1996 As Purchase Applications Drop -22.2% WoW, -38.5% 2WoW, -42% YoY (Refi Apps Down -87% YoY)

Mortgage applications generally nosedive in the last two weeks of the year (seasonality effect), but Federal Reserce monetary tightening to fight inflation is making the last two weeks worse than usual.

Mortgage applications decreased 13.2 percent from two weeks earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 30, 2022. The results include adjustments to account for the holidays. It marked the lowest mortgage applications since 1996.

The Market Composite Index, a measure of mortgage loan application volume, decreased 13.2 percent on a seasonally adjusted basis from two weeks earlier. On an unadjusted basis, the Index decreased 39.4 percent compared with the two weeks ago. The holiday adjusted Refinance Index decreased 16.3 percent from the two weeks ago (2WoW) and was 87 percent lower than the same week one year ago (YoY). The seasonally adjusted Purchase Index decreased 12.2 percent from two weeks earlier. The unadjusted Purchase Index decreased 38.5 percent compared with the two weeks ago and was 42 percent lower than the same week one year ago.

Notice that purchase applications are declining with slowing M2 Money growth showing the impact of The Fed trying to remove the punchbowl.

The week-over-week (or WoW) numbers are pretty bad.

Something Happening? Fed Repos Soar To $2.55 Trillion As US Treasury Yields Tank -14.5 Basis Points (Mortgage Rates To Decline)

There is something happening in markets this morning. And its not good.

First, banks are stashing cash with the New York Fed on an “overnight basis” although it is looking pretty permanent to me. Repos (or repuchase agreements) soared to $2.55 TRILLION as of 12/30/22.

But this morning we see the US Treasury 10-year plummeting -15 basis points. As I used to tell my University of Chicago, Ohio State and George Mason finance students, any 10 basis point shift (plus or minus) is a big deal. Something is happening.

The 10-year Treasury yield plunging -15 bps is a “good thing” for the mortgage market in that US mortgage rates will likely follow suit and fall.

Is The US Economy Already In A Recession? Put/Call Ratio, US Yield Curve And 20 Straight Months Of Negative Wage Growth Say Yes, Real GDP And Unemployment Rate Say No

Today is all quiet of the financial market front since the US stock

Today is all quiet of the financial market front since the US stock and bond markets are closed. But as the new year starts, we have to ask the following question: is the US already in a recession?

Well, if you follow the NBER business cycle tracker, the answer is no. Unfortunately, the NBER only tells us if we are in a recession after it has already happened.

A simple measure of IMPENDING recession is the US yield curve which is currently inverted. Typically, a recession occurs within months of the yield curve inverting. But if we look at real GDP growth, the Atlanta Fed GDP tracker is at 3.7%, so no recession there (two consecutive quarters of negative GDP growth is often used as a measure of recession).

But another indicator of “all is not well” is the CBOE Put/Call Ratio. Typically, the Put/Call Ratio spikes during a recession. But on December 28, 2022, the Put/Call Ratio spiked to its highest level since 1996. Although it has calmed down to 0.84 on December 30, 2022. Suffice it to say that there is enormous uncertainty in markets.

Covid begat massive Fed monetary stimulus and an excuse for the Federal government to go on a series of spending sprees (Covid “relief”, Instrastructure, Inflation Reduction, and now the $1.7 Trillion pork-laden Omnibus bill). Now that historic big spender Nancy Pelosi (CA-D) is no longer Speaker, will her successor have such a voracious spending appetite? The US economy is still benefitting from Covid-related stimulus which also helped generate 40-year highs in inflation.

Thanks to inflation, US workers have had 20 consecutive months of negative wage growth. But as M2 Money growth slows to a halt, so will real average hourly earnings.

The traditional measures of recession (unemployment and Real GDP growth) are NOT pointing to recession, but 20 straight months of negative wage growth points to bad news for workers. Throw in an inverted yield curve and massive volatility in the CBOE Put-Call Ratio and we have a party … that I don’t want to attend.

In other news, the Washington Commanders football team unveilved a new hog mascot. Of course, the Washington Hogs mascot could also apply to the Federal government with their incessant pork-barrel spending. Nancy Pelosi (D-CA) is the honorary hog.

Hey big spenders, spend TRILLIONS on Ukraine and pork barrel projects.

and bond markets are closed. But as the new year starts, we have to ask the following question: is the US already in a recession?

Well, if you follow thme NBER business cycle tracker, the answer is no. Unfortunately, the NBER only tells us if we are in a recession after iti has already happened.

Thanks to inflation, US workers have had 20 consecutive months of negative wage growth. But as M2 Money growth slows to a halt, so will real average hourly earnings.

Hey big spenders, spend TRILLIONS on Ukraine and pork barrel projects.