November 26, 2022

More evidence of a possible major shift in the economic narrative

More evidence of a possible major shift in the economic narrative

This post was originally published on Tker.co.

There is more evidence that the economic narrative could be so Going through a big transformation.

For months, we’ve been living in an economy in it Strong demand was offset by supply delays, which led to a spike in inflation. It appears that we are now entering a phase where demand growth is slowing and supply chains are slowing down, bringing down inflation.

According to the data of the Census Bureau released Wednesdaynon-defense capital goods purchase orders excluding aircraft – aka Basic Capital Expenditure Or business investment – jumped 0.3% to a record $73.1 billion in April.

While the 0.3% growth rate represents a slowdown from the 1.1% rate in March, that kind of slowdown is welcome news for people like the Federal Reserve, which is Actively work to cool economic growth in its efforts to reduce inflation.

“This is consistent with our view that economic activity is bending rather than collapsing under the influence of higher rates,” Michael Pierce, chief US economist at Capital Economics, said in a note on Wednesday.

Core capital expenditure growth represents a Great economic wind. And the fact that it continues to grow, albeit at a slowing pace, is a good sign of growth for the economy as a whole.

according to Standard & Poor’s global flash manufacturing PMI in the United States The report, released on Wednesday, continued these emerging economic trends in May. Specifically, the composite production index fell to a four-month low of 53.8 in May. For this indicator, any reading above 50 indicates growth, so a decreasing number indicates growth is slowing.

“Growth has slowed since peaking in March, most notably in the services sector, as pent-up demand after the economy reopened after the Omicron wave showed signs of abating,” said Chris Williamson, chief business economist at S&P Global Market Intelligence, Wrote Wednesday.

Consumer spending growth slows as excess savings are exploited

Growth appears to be cooling on the consumer front as well.

according to BEA . report Released on Friday, personal consumption expenditures (ie consumer spending) rose 0.9% in April from the previous month to new highs. However, this was a healthy slowdown from the 1.4% growth rate in March.

Expenditure was stated as the saving rate (i.e. the difference between income and expenditure). to its lowest level since September 2008.

While this development in itself is worrying, it comes after consumers have spent more than two years Accumulating more than $2 trillion in excess savings.

“It appears that households have been eating the ‘excess savings’ accumulated in the early stages of the pandemic in order to increase consumer spending in recent months,” JPMorgan economist Daniel Silver wrote in a note on Friday.

As we’ve discussed a lot on TKer, this extra savings accounts for a Great economic wind. For a while, you could argue that It was exacerbating inflation. But now it seems so Boost spending as the economy slows.

slowdown news is not exactly The kind of thing that requires a festive tone. But that is exactly the kind of thing that should help bring down inflation.

More signs of a supply chain slump

The S&P PMI report also indicated that there may be some light of day in the Middle East Disrupted supply chains.

Manufacturers in particular have also reported that capacity remains restricted due to supply shortages These bottlenecks showed other encouraging signs of easing,S&P’s Williamson said (emphasis added).

It’s also been a while since we’ve heard of ships slowing out of ports waiting to be unloaded.

“US port data suggests backlog is easing,” JPMorgan economists Wrote last week. Notable examples are the ports of Los Angeles and Long Beach, which handle about 40% of all imports into the United States.

And not only sea freight has been eased. Trucking seems to be starting to loosen up, too.

According to BofA’s Truck Shipper survey for the week ending May 19, “shippers are finding it much easier to secure capacity (highest since June 2020).”

Unfortunately, at least some of the signs of supply chain slackening can be explained by easing demand for goods. but, again, This is the dynamic that should act to reduce inflation.

More signs that the labor market is cooling

Bloomberg mentioned Tech giant Microsoft has been slowing hiring in its Windows, Office and Teams businesses.

PayPal laid off 83 employees At its headquarters in San Jose.

These are tales. But the developments are in line with the Fed’s goal of calming inflation First, the labor market cools.

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Evidence that inflation has peaked

Last month, I Wrote About how economists across the board have been saying inflation – as measured by annual price increases – has peaked.

On Friday, we got more evidence to confirm that this might be the case.

The PCE Core Price Index – The Fed’s preferred inflation measure – It rose 4.9% in April from a year ago. This is down from the 5.2% rate in March and the 5.3% peak rate in February.

On a monthly basis, the core PCE price index has increased 0.3% over the past three months.

It is still too early to declare victory over inflation

“Many have viewed March as the peak of inflation and are looking to cool inflation from here,” Grant Thornton Chief Economist Diane Sonic He said On Friday.. “We are not so convinced given the risks we still face due to the war in Ukraine and the lockdowns in China. Either way, it’s important to note that any cooling we see will have a raised floor. Both core and core PCE indicators remain well above the Fed’s 2% target.”

In fact, inflation still has a long way to go to reach 2% from 4.9%.

Thus, we will have to monitor the incoming data to see if Indeed, a major shift in the economic narrative is underway.

More from TKer:

rear view 🪞

📈 Stocks soar, ending 7 consecutive weeks of losses: The S&P 500 rose 6.6% last week, ending a seven-week losing streak. It was the biggest one-week gain since November 2020. The index is now down 13.3% From the January 3 closing high of 4,796.56, but 6.6% above the May 19 closing low of 3900.79. For more information on market volatility, read this is And the this is. If you want to read about bear markets, read on this is.

💰 Company insiders buy shares of their companies: From JPMorgan: “…company insiders have a non-consensus view across most sectors and are actively buying on dips with net internal buying activity reaching 1STDev above trend level.”

📈 Mortgage rates are still high, but they are dropping: The average fixed interest rate for a 30-year mortgage fell to 5.10% from 5.25% in the previous week. over here Freddy Mac: “Mortgage rates have fallen for the second week in a row due to multiple headwinds facing the economy. Despite the recent moderation in prices, the housing market has clearly slowed, and the slowdown has spread to other sectors of the economy, such as consumer spending on durable goods.”

🏡 New home sales declineNew-built home sales fell 16.6% month over month to an annual rate of 591,000 units, according to Census office data.

😤 Consumer morale is deteriorating: University of Michigan Consumer Confidence Index It dropped to 58.4 in May, its Lowest level since August 2011. From the survey: “This latest decline was largely driven by persistent negative views of current home and durable buying conditions, as well as consumers’ future expectations for the economy, primarily due to concerns about inflation.”

Keep in mind that deteriorating feelings It did not come with a decrease in spending in the past months. For more information on feelings, read this is.

🛫 people do things: From Emily McCormick from Yahoo Finance: “Southwest Airlines and JetBlue on Thursday raised their quarterly guidance, indicating strong demand heading into the crucial summer travel season. Both upward revisions came just weeks after companies initially announced their forecasts last month.”

This follows a similar announcement from United Airlines last week. Altogether, it is clear that People refuse to postpone their lives.

up the road 🛣

It’s Jobs Week in America. Wednesday comes with the April jobs survey and employment turnover and Friday comes with the April employment report. Employment growth has been very strong and Standard job opportunities It enabled workers to earn higher wages.

However, there are approximately two vacancies for every unemployed person. this is Good news is blamed for high inflation, which is badwhich is what Fed aims to tackle tighter monetary policy.

US financial markets will be closed on Monday for Memorial Day.

Sam Rowe is the founder of Tker.com. Follow him on Twitter at Tweet embed

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