What a bloodbath

Looking for early signs

New unemployment claims came in at 229k last week, higher than the 210k number expected, and 27k higher than the prior week. This is the highest weekly unemployment number we’ve seen since January. The weekly numbers tend to be volatile and can be impacted by holiday weekends and the such. The trend in these numbers over a four-week period (to try and smooth out the weekly volatility) is still showing some of the strongest numbers since the 1970s.

Moral of the story: One week does not make a trend in this economic metric BUT we’re hearing a lot of big tech companies talking about layoffs and pausing hiring – could this be the very first sign of a slowing labor market?

Record highs

Inflation came in hot for May, up 8.6% compared to last year, which is the sharpest increase in inflation we’ve seen since the end of 1981. Huge part of this is driven by rising fuel prices that were up 106.7% in the last year (SOS). Stripping out energy and food, the “core” measures of inflation still increased 6% compared to last year.

Moral of the story: Inflation rose at a faster clip than economists were expecting, and stocks reacted pretty negatively to this report. Rising prices are putting more and more pressure on consumers’ wallets but we’re seeing the early signs that these pressures might be rolling over. The housing market is starting to slow and wage pressures are starting to come off as more and more tech companies are talking about pausing hiring or even laying off workers. That being said, this means the Fed will likely keep tightening policy to pump the breaks on the economy by forcing a reduction in demand and, in turn, a reduction in prices. The million-dollar question is whether they can do that without running the economy totally into the ground (aka recession).

Record lows

The University of Michigan (always pains me to reference this index as a Penn Stater) has been measuring consumer sentiment since the 1970s through an index that came in at a record low for June. To put this into context, we’ve lived through several recessions and a global pandemic since the 1970s and we are currently feeling worse than during any of those times. That says something.

Moral of the story: Consumers’ assessment of their personal financial situation contributed for half the decline in overall sentiment – and inflation is the culprit for almost half of this pessimism. The worst part is how persistent people expect this inflation to be. It’s not difficult to imagine how gas at $5/gallon nationally (according to AAA) is causing people to rethink spending $5.50 on an oat milk iced matcha latte.

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