• Alliteration abound

    Global growth  The IMF is turning quite pessimistic and expecting the global economy to grow at just 3% this year, which is 0.2% lower than the previous estimate and the slowest pace since the global financial crisis in 2008. The IMF does expect growth to improve slightly to 3.4% in 2020, driven by improvements in some emerging markets like Turkey, Iran, and Argentina.  Moral of the story: To put this into context, if global growth slows to less than 2.5%, it would be considered a recession. The IMF predicts that if all the tariffs in the China trade war are implemented, it would reduce global growth by 0.8% by 2020. This means…

  • Playing games

    Minute by minute  We saw the meeting minutes from September’s FOMC meeting when the committee decided to cut interest rates for a second time this year. The minutes indicated the Fed’s heightened downside economic risk and recession probability today compared to a few months ago. The decision to cut rates, for some members, was driven by the possibility that it may “help forestall layoffs.” All the flashing caution signs. Fed Chairman Jerome Powell’s commentary this week acknowledged the slowdown in economic activity and also provided context around the Fed’s “soft” quantitative easing through balance sheet expansion and short-term yield curve control.  Moral of the story: The Fed is clearly weary of the slowing business environment having an…

  • Winter is coming

    Not pleased  The ISM manufacturing index fell to 47.8 for the month of September, down from 49.1 in August, and contracted to its lowest level since June 2009 (end of the global financial crisis). The market was expecting a reading just above 50, which would indicate an expansionary environment. Needless to say, this report was not well received and stocks took a major hit. Trump promptly took to Twitter to blame the Fed for this situation (**face palm**). The ISM non-manufacturing index (aka services index) also fell for September to 52.6, which is the weakest growth we’ve seen in three years.  Moral of the story: While manufacturing is becoming a smaller part…

  • A Collection of Pop Songs

    Free falling  Consumer confidence fell sharply in September to a three-month low driven by the risks posed to the manufacturing and farming sectors because of trade tensions with China. Confidence fell in regards to the current situation as well as projections for the future. Consumer expectations for six months in the future actually dropped to their lowest level since the beginning of the year. One of the more worrisome findings from this month was that the confidence in the labor market also fell – consumers don’t believe jobs are as plentiful today as they were even just a month ago. Moral of the story: There’s only so much the Fed…

  • Adding to the Madness

    The last cut is the deepest  As expected, the Fed cut its benchmark interest rate by another 0.25% during its meeting this week. Contrary to expectations, however, Fed Chair Jerome Powell pointed to the strength of the economy and suggested expanding its balance sheet (they had been doing the opposite). This decision wasn’t unanimous as two board members wanted to keep rates unchanged while another board member, who believes manufacturing to be in recession already, wanted to cut rates more aggressively by 0.50%.  Moral of the story: The biggest question for the market heading into this decision was the Fed’s willingness on further economic stimulus in the form of rate cuts during…

  • ICYMI, it’s palindrome week

    Houston, we have a debate The third Democratic presidential debate in Houston this week was the first time Joe Biden and Elizabeth Warren shared a debate stage. Expectations for drama were obviously quite high. Topics of “discussion” included universal pre-K, universal health care, taxes, minimum wages, and climate change. Variations on a theme included the need to remove Trump from the White House and the love of Obama.  Moral of the story: The Democratic Party still has a long way to go before any one candidate emerges as a clear winner but a few agenda items seem to be universal across the board. Trump’s policies benefit energy, infrastructure, and defense…

  • It’s Going Down

    Timber!  It finally happened guys, the ISM manufacturing index fell below 50, indicating a contractionary environment. Economists were expecting the index to remain in slightly expansionary territory, but the 49.1 reading in August is the lowest since January 2016. We saw a marked decline in both new orders and production this month as only half the industries reported any growth in August and only 17% of industries reported growth in new orders.  Moral of the story: This index has been dangerously approaching contractionary territory for months and this report is indicative of a notable decrease in business confidence during the month of August. This index has fallen 10 points since…

  • Back in Business

    Better than expected  Second quarter GDP was revised slightly downward to 2% driven by weaker exports and corporate investments. This 2% number is significantly lower than the 3.1% growth rate we saw in the first quarter (remember much of the growth last quarter was driven by factors more short-term in nature like inventories and trade). The revision for the second quarter indicated stronger consumer spending, which grew at the strongest pace since 2014. Business investment, conversely, was weaker driven by uncertainty caused by geopolitical risks. Moral of the story: The second quarter proved that consumers continue to be the engine of economic growth while businesses are standing at the sidelines waiting to see what…

  • Finding the Balance

    Look out below Consumer prices increased 1.8% for the twelve months ending in July, slightly higher than the 1.6% increase last month but still significantly lower than the 2.9% readings last year. Excluding food and energy, core CPI actually increased 2.2% over the last year, which the highest reading in six months. While this measure of inflation is trending close to the Fed’s 2% target, the Fed’s preferred inflation tracker (PCE Index) is running close to 1.4%.  Moral of the story: These inflation levels still provide the Fed with an option to further cut rates in 2019 if they perceive the economic conditions warrant such action – the market is actually expecting…

  • Monday, Blood Monday

    Slowed swiping  Consumer borrowing in June expanded at the slowest pace in three months, driven by contracting credit card debt. Revolving credit (like credit cards) fell by 0.1% for the month, after growing 8.4% and 7.6% the two months prior. Non-revolving credit (like auto and student loans) tend to be less volatile and increased at a steady rate by 5.8%.  Moral of the story: Despite the weakness in June, consumer credit for the second quarter expanded by 4.9%, which was 0.6% higher than the expansion we saw in the first quarter. While I like to see consumer debt decline on a personal level, it means consumers are spending less. The…