7/29- Weekly Economic Highlights
Jul 29, 2022 | Weekly Highlights
Tightening financial conditions and the year-to-date increase in interest rates continue to adversely impact the trajectory of the US and Global economy. Notably the advance report on second quarter GDP exhibited negative growth for the second quarter in a row, coming in at -0.9% compared to the -1.6% reading in the first quarter of 2022. Although many market participants link two quarters in a row of negative GDP growth as being consistent with a recession, in the US the National Bureau of Economic Research is the official arbiter. Given the mosaic of data, including strong job growth and a low unemployment rate, an official declaration is unlikely. Current trends in the housing market are exhibiting weakness, with new home sales dropping precipitously in June to 590k compared to the May number which was originally posted at 696k but was revised lower to 642k. The widely followed S&P Core Logic 20 City Home Price Index was more constructive, increasing by 20.5% on a year over year basis, but the data is as of May 2022. The Chandler team believes the rate of change in home price appreciation in the S&P Core Logic 20 City Home Price Index will move lower over the course of the year, linked to the negative performance of equity and bond markets, as well as the substantial increase in mortgage interest rates.
This morning the Personal Consumption Expenditures (PCE) Inflation data were released, and in a concerning development the inflation numbers continue to run hot. The PCE Deflator came in at 1.0% on a month-over-month basis in June, an increase from the 0.6% increase in May, elevating the year-over-year number to 6.8% compared to 6.3% in the prior month. The PCE core number also surprised to the upside, coming in at 0.6% month over month, compared to 0.4% in June, and increasing the year-over-year number by 0.1% to 4.8%. The outlook for longer term inflation metrics to moderate lower over the coming quarter will be challenging, as the month-over-month numbers from Q3 of 2021 are all materially lower than the current inflation trends.
The Federal Open Market Committee (FOMC) met this week and delivered another 75 basis point increase to the Fed Funds Rate, increasing the range to 2.25% to 2.50%. The FOMC acknowledged spending and production were trending lower, offset by a strong labor market and elevated inflation metrics. Fed Chair Powell declined to provide ‘forward guidance’ and pointed market participants towards the June 2022 Summary of Economic Projections for the most current read on the FOMC outlook for policy adjustments. Chair Powell acknowledged current policy settings are close to neutral but emphasized policy would need to move to a more restrictive stance to counterbalance the elevated inflation trends. The next FOMC meeting is almost two months away, concluding on September 21st; the Chandler team believes policy accommodation will continue to be removed and the Fed Funds rate will continue to increase. As inflation metrics begin to moderate, we believe the Federal Reserve will moderate their pace of tightening, but a material moderation in inflation in the short-term is unlikely.
ISM Manufacturing, ISM Services, Employment Report, and Consumer Credit
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