• Economic Indicators Playing Games

    Duck  The US manufacturing sector continues to contract as the ISM manufacturing index came in at 48.1 in November, down 20bps from last month. A reading below 50 is indicative of a contractionary environment, and this marks the fourth straight month of contraction. More concerning is the composition of the index as new orders fell to the lowest level since April 2009. The services side of the economy isn’t doing much better as the ISM non-manufacturing index fell again in November to 53.9, which is only slightly in positive territory.  Moral of the story: Honestly, the manufacturing sector is effectively already in a recession right now. The services sector isn’t…

  • Democracy FTW

    Coming back from the depths  Since the Global Financial Crisis in 2007-2008, the housing market has been clawing itself out of a deep, deep hole given housing was the crux of the issue. But thanks to lower interest rates and an aging generation of “millennials” who need space for their growing families, October marked the third month in a row when the annual pace of single-family home sales was higher than 700k – the last time this happened was 2007.  Moral of the story: We’ve been seeing an increase in homeownership rates recently due to lower interest rates and an increase in home purchases would definitely help boost GDP as we head into 2020,…

  • Consuming thoughts on the consumer

    The Fed’s thoughts  Meeting minutes from the latest FOMC meeting indicated a more positive outlook of the economy in October than the prior meeting. However, officials voted with an overwhelming majority (8 to 2) to cut rates for the third straight meeting as the committee felt uncertainties associated with trade tensions and geopolitical risks had eased but still remained elevated. Officials also discussed tools to use in the next recession and unanimously opposed pushing rates into negative territory (ICYMI, there are countries in Europe where you literally get paid to take out a mortgage to buy a house because interest rates are **that** negative).  Moral of the story: There was widespread support to move to…

  • The Beginning of the End?

    Deck the Wal’s…  Retail sales rebounded in October after a rut in numbers recently but the headline strength was driven by auto and gasoline sales. Excluding those, retail sales only rose 0.1% this month as most retailers experienced (hopefully) just a calm before the holiday season shopping storm. Online retailers, however, continued to see positive results. Moral of the story: Consumer surveys are pointing to the possibility of a strong holiday shopping season but the decrease in spending reported in September combined with the lackluster increase in October makes me feel meh. However, Walmart’s earnings release this week was quite strong and management increased full-year outlook ahead of the holiday…

  • The Blame Game

    Why is the services sector slowing? The manufacturing sector in this country has seen better days and continues to contract, but the services side of the economy, which is a much larger part of our economy today, rebounded in October after hitting a three-year low in September. The index saw improvements for new orders as well as employment, which increased 3.3 points from a five-year low in September.  Moral of the story: Services sectors have been more insulated from the negative impacts of the trade war with China compared to manufacturing sectors but have still been impacted by the slowdown. The ISM non-manufacturing index six points lower than its cycle…

  • Trick or Treat

    The Almond Joy  The first read on third quarter GDP showed the economy grew at an annual pace of 1.9%. While its lower than what we saw last quarter, things could have definitely been much worse. Consumers continued to do their part to keep this record long economic expansion going as consumption, which accounts for 70% of the economy, increased 2.9%. Businesses, on the other hand, slowed as spending on equipment fell 3.8% and investment in structures fell more than 15%, which is the steepest decline in almost four years. Moral of the story: While businesses have become increasingly cautious, consumers seem to have to have acclimated to the economic uncertainties presented by a…

  • Earnings are here

    Feeling Sentimental  October consumer sentiment was revised half a point lower to 95.5, which is about in line with the average we’ve seen in 2019. Consumers are still optimistic about their own situations but incrementally more worried about the broader economy today than they were a year ago (shocker, I know). However, in quite the turn of events, fewer consumers were worried about the China trade war in October than in September. Moral of the story: The labor market is still providing consumers enough confidence to continue spending as they have to sustain this record-long economic expansion. However, confidence has definitely waned from the tax cut highs last year and…

  • 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…