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Tuesday, July 12, 2022
Present-day e-newsletter is by Myles Udland, senior marketplaces editor at Yahoo Finance. Comply with him on Twitter @MylesUdland and on LinkedIn.
Climbing interest are crushing the U.S. housing industry.
To which audience will probable reply: “Convey to me anything I do not know.”
But as the Federal Reserve remains resolute in its programs to aggressively elevate fascination fees in an work to tamp down inflation, the U.S. housing sector stays ground zero for where by the most acute impacts are becoming felt.
In a terrific Twitter thread on Monday, Rick Palacios, Jr., director of exploration at John Burns True Estate Consulting, provided some of the highlights from the firm’s most modern survey of homebuilders.
The commentary ranges from involved to apocalyptic. Factors have changed that speedily.
A “offered” sign is observed outdoors of a recently procured dwelling in Washington, U.S., July 7, 2022. REUTERS/Sarah Silbiger
In Greenville, S.C., a builder claimed: “Traffic has slowed from pink very hot. Feels different for certain, but it’s a lot more like a ordinary current market.”
A builder in Charlotte told the company: “This recession is seeking like and emotion like a significant extended 5 year depression.”
In Palacios’ look at, the June survey highlights 3 primary troubles for housing ideal now:
Much more new homebuyers are canceling.
Price cuts are widespread.
Slipping demand is cooling design price tag pressures.
Details out late previous thirty day period on both of those new and present dwelling sales pointed to a continued slowdown in the U.S. housing current market, though survey facts from Fannie Mae confirmed sentiment among the prospective homebuyers hit its lowest reading through given that 2014.
And even though mortgage loan prices registered their premier weekly fall considering the fact that 2008 previous week, at 5.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} the regular amount on a 30-calendar year preset property finance loan is nonetheless at the best stage since 2009.
Of system, some people who are hopeful homebuyers may well search to information of a slowdown in the market as a beneficial indicator for their long run prospective customers. However as we’ve prepared formerly in this house, bigger rates have significantly adjusted the affordability equation for houses at the very same value stage.
Final month, Federal Reserve chair Jerome Powell described the housing marketplace as going through a “reset” amid rising desire prices economists at the time said the shift in housing was “a bit a lot more than that.”
Increasing fascination premiums and a common cooldown in economical markets may well perfectly extinguish the present-day housing increase. Info from Eric Finnigan at Johns Burns Real Estate showed the demand for 2nd-dwelling home loans has dropped sharply this 12 months just after exploding in 2020 and 2021.
The conclude of this newest housing mania, even so, most likely will not usher in a new period of elevated affordability. Stock is on the increase, but remains frustrated.
And as the economist Ed Leamer argued in his famed 2007 paper declaring housing is the business cycle, housing downturns are expressed as drops in quantity.
“For GDP and for employment, it is the volume that matters,” Leamer wrote, afterwards incorporating: “With the drop in revenue volume arrives a like decline in jobs in development, finance and true estate brokerages.”
Which is why this housing current market slowdown has economists and policymakers fearful about this slowdown turning in to a little something larger.
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Ovintiv Inc. (NYSE:OVV – Get Rating) – Equities researchers at Capital One Financial reduced their Q3 2022 earnings per share estimates for shares of Ovintiv in a research note issued on Monday, July 11th. Capital One Financial analyst P. Johnston now forecasts that the company will post earnings of $2.18 per share for the quarter, down from their previous forecast of $2.89. Capital One Financial has a “Overweight” rating and a $82.00 price objective on the stock. The consensus estimate for Ovintiv’s current full-year earnings is $9.43 per share. Capital One Financial also issued estimates for Ovintiv’s Q4 2022 earnings at $2.30 EPS, FY2022 earnings at $9.21 EPS and FY2023 earnings at $12.02 EPS. Ovintiv (NYSE:OVV – Get Rating) last released its earnings results on Monday, May 9th. The company reported $2.17 earnings per share for the quarter, missing the consensus estimate of $2.54 by ($0.37). The business had revenue of $1.97 billion for the quarter, compared to analysts’ expectations of $2.42 billion. Ovintiv had a net margin of 9.86{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} and a return on equity of 60.01{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.
Several other equities research analysts have also issued reports on the company. Barclays lifted their price target on Ovintiv from $56.00 to $72.00 and gave the company an “overweight” rating in a report on Tuesday, June 14th. Morgan Stanley reduced their target price on Ovintiv from $68.00 to $65.00 and set an “overweight” rating for the company in a report on Monday, June 6th. Mizuho reduced their target price on Ovintiv from $78.00 to $77.00 and set a “buy” rating for the company in a report on Tuesday, May 31st. TD Securities reduced their target price on Ovintiv from $67.00 to $65.00 and set a “buy” rating for the company in a report on Tuesday, May 10th. Finally, Wells Fargo & Company boosted their target price on Ovintiv from $52.00 to $72.00 and gave the stock an “overweight” rating in a report on Monday, March 14th. Two analysts have rated the stock with a hold rating and sixteen have given a buy rating to the stock. According to data from MarketBeat.com, the company currently has an average rating of “Moderate Buy” and a consensus target price of $63.74.
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In response to Putin’s invasion of Ukraine, the US dusted off a Cold War-era power and invoked the 1950’s Defense Production Act. It calls for the support of mining and manufacturing of critical minerals such as copper, to speed up the transition to green energy. But with Russia sitting on the world’s third-largest reserves of copper, new sources of mining are desperately needed.
Shares of Ovintiv stock opened at $42.18 on Tuesday. The company has a current ratio of 0.54, a quick ratio of 0.54 and a debt-to-equity ratio of 1.02. Ovintiv has a 52-week low of $21.92 and a 52-week high of $63.30. The stock has a 50-day simple moving average of $49.97 and a 200-day simple moving average of $46.59.
Institutional investors and hedge funds have recently modified their holdings of the company. Moors & Cabot Inc. acquired a new position in shares of Ovintiv during the third quarter valued at $25,000. UMB Bank N A MO acquired a new position in Ovintiv in the fourth quarter valued at about $39,000. CWM LLC boosted its holdings in Ovintiv by 211.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during the first quarter. CWM LLC now owns 1,216 shares of the company’s stock worth $66,000 after buying an additional 826 shares during the last quarter. Tobam bought a new position in Ovintiv during the 1st quarter worth approximately $77,000. Finally, Deseret Mutual Benefit Administrators grew its holdings in Ovintiv by 58.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during the fourth quarter. Deseret Mutual Benefit Administrators now owns 2,382 shares of the company’s stock valued at $80,000 after purchasing an additional 882 shares during the period. 76.96{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the stock is currently owned by institutional investors and hedge funds.
In other Ovintiv news, Director Howard John Mayson sold 550 shares of the business’s stock in a transaction on Wednesday, June 1st. The stock was sold at an average price of $58.28, for a total value of $32,054.00. Following the transaction, the director now owns 27,003 shares of the company’s stock, valued at $1,573,734.84. The transaction was disclosed in a legal filing with the SEC, which is available through the SEC website. Also, Director Thomas G. Ricks sold 10,000 shares of the business’s stock in a transaction on Monday, May 23rd. The stock was sold at an average price of $50.00, for a total value of $500,000.00. Following the completion of the transaction, the director now directly owns 135,500 shares in the company, valued at approximately $6,775,000. The disclosure for this sale can be found here. Insiders sold 39,785 shares of company stock worth $2,213,809 over the last quarter. Company insiders own 0.76{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the company’s stock.
The business also recently declared a quarterly dividend, which was paid on Thursday, June 30th. Shareholders of record on Wednesday, June 15th were given a $0.25 dividend. This represents a $1.00 dividend on an annualized basis and a yield of 2.37{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. This is a boost from Ovintiv’s previous quarterly dividend of $0.20. The ex-dividend date was Tuesday, June 14th.
Ovintiv Inc, together with its subsidiaries, engages in the exploration, development, production, and marketing of natural gas, oil, and natural gas liquids. It operates through USA Operations, Canadian Operations, and Market Optimization segments. The company’s principal assets include Permian in west Texas and Anadarko in west-central Oklahoma; and Montney in northeast British Columbia and northwest Alberta.
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Should you invest $1,000 in Ovintiv right now?
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Strategists at BlackRock’s Financial commitment Institute claimed Monday the firm slash its exposure to designed marketplace equities, citing intense intervention by central financial institutions to tame growing selling prices across the world-wide economy.
“Right now, we consider the Fed has boxed alone in by responding to political pressures to rein in inflation,” strategists led by Jean Boivin mentioned in a take note printed Monday. “Eventually, the problems to development and positions from battling inflation will grow to be clear, in our look at, and central banking institutions will are living with better inflation.”
In identical commentary final month, BlackRock strategists argued the US central bank’s rate hiking marketing campaign was poised to stall economic advancement with out always fixing inflation pressures. The business argued significant main inflation had been been pushed by “unusually low production capacity in an incomplete restart adhering to the pandemic” alternatively than overheating demand from customers.
As a consequence of its downgraded see on equities, BlackRock also stated traditional 60/40 stock-bond portfolios, and “buying the dip” — or reflexively obtaining shares just after a limited-time period decline — are no more time probably to be effective financial commitment strategies. The business indicated it has boosted its allocation to expense quality credit rating along with minimizing its stake in equities.
“We see a new era of unstable inflation and progress sweeping aside a period of moderation,” the agency explained in commentary Monday. “We downgrade equities and up grade credit history in this new regime.”
The downwardly revised outlook comes just over a week just after stocks concluded off their sharpest very first-50 percent year decline in a lot more than 5 a long time.
The 1st six months of the year noticed the S&P 500 enter a bear marketplace, and this downturn has prompted other large-name Wall Road establishments to trim their price tag goal for the benchmark index.
A trader operates on the flooring of the New York Inventory Trade (NYSE) in New York Metropolis, U.S., June 22, 2022. REUTERS/Brendan McDermid
Between the corporations reducing their outlook for stocks was Credit rating Suisse, whose chief US equity strategist Jonathan Golub slashed his calendar year-conclude estimate for the S&P 500 by 600 factors to 4,300 in a be aware to clientele July 5. Whilst the new target implies a rally via the relaxation of 2022, the determine marks a sharp turnaround from a December 2021 exploration report in which the financial institution lifted its concentrate on for the U.S. benchmark index to 5,200 from 5,000, citing “robust” financial advancement. The S&P 500 capped Friday’s buying and selling session at 3,899.
Even the most bullish strategist on the Street appears fewer optimistic.
Oppenheimer Asset Management chief financial investment strategist John Stoltzfus on Thursday lower his calendar year-stop price tag concentrate on on the S&P 500 to 4,800 from 5,330. Prior to the modify, Stoltzfus held the maximum 12 months-conclude selling price target on Wall Road strategists tracked by Yahoo Finance, even reiterating the get in touch with as lately as June 21.
In the meantime, Citigroup (C) strategist Scott Chronert in a be aware to clientele Monday explained he sees the S&P 500 rallying about 8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from present-day degrees to stop the yr at 4,200.
“We cut most formulated market equities to a tactical underweight,” BlackRock reported, attributing the downgrade to increased macro volatility as “central financial institutions show up established on reining in inflation by crushing growth,” BlackRock claimed.
Continue to, the institution reiterated it prefers equities around bonds in the extended run as yields increase and inflation tendencies increased.
“We assume central banking institutions will stay with larger inflation, pause and then modify program on their price rises — a boon for stocks,” the strategists stated.
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Alexandra Semenova is a reporter for Yahoo Finance. Comply with her on Twitter @alexandraandnyc
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SAN FRANCISCO — For yrs, Twitter was a runner-up social media corporation. It by no means grew to the dimensions and scale of a Fb or an Instagram. It merely muddled together.
Then, Elon Musk, a ability person of the company, stormed in. He available $44 billion to acquire Twitter and declared that the firm could conduct considerably much better if he had been in charge. He disparaged Twitter’s executives, ridiculed its written content procedures, complained about the product and confused its much more than 7,000 staff members with his pronouncements. As Mr. Musk disclosed the company’s lack of small business and economical potential customers, Twitter’s stock plunged extra than 30 {21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.
Now, as Mr. Musk, a billionaire, tries to again out of the blockbuster deal, he is inexorably leaving Twitter even worse off than it was when he stated he would obtain it. With just about every needling tweet and general public taunt, Mr. Musk has eroded have confidence in in the social media organization, walloped worker morale, spooked opportunity advertisers, emphasised its fiscal troubles and distribute misinformation about how Twitter operates.
“His engagement with Twitter took a serious toll on the firm,” reported Jason Goldman, a member of Twitter’s founding team who has also served on its board of directors. “Employees, advertisers and the sector at substantial simply cannot have conviction in a company whose route is unknowable and which will now go to courtroom to complete a transaction with a poor-religion actor.”
The precarious predicament underscores why Twitter is established to sue Mr. Musk as shortly as this week to pressure a completion of the deal. The court docket struggle is probably to be protracted and huge, involving months of costly litigation and substantial-stakes negotiations by elite legal professionals. A resolution is much from particular — Twitter may gain, but, if it loses, Mr. Musk could wander away by having to pay a separation cost. Or the two sides could renegotiate or settle.
On Monday, the damage that Mr. Musk, 51, has inflicted was obvious. Twitter’s stock plunged additional than 11 percent to 1 of its cheapest points since 2020 as traders anticipated the coming legal fight. Given that Twitter recognized Mr. Musk’s acquisition give, on April 25, its inventory has shed about a 3rd of its priceas traders have developed ever more skeptical that the offer would get accomplished on the agreed phrases. (In distinction, the tech-weighty Nasdaq index was down about 12.5 p.c in the same period of time.)
Twitter declined to remark on Monday. In a letter to Mr. Musk’s legal professionals on Sunday, the company’s attorneys stated that his shift to terminate the deal was “invalid and wrongful” and that Mr. Musk “knowingly, deliberately, willfully and materially breached” his arrangement to buy the organization. Twitter would go on to deliver information to Mr. Musk and to get the job done to shut the transaction, the letter additional.
Mr. Musk did not return requests for comment. On Sunday, the billionaire, who has cited the range of phony accounts on Twitter’s platform as the motive that he cannot purchase the enterprise, tweeted a picture of himself laughing at the predicament.
Of all the wreckage Mr. Musk is leaving at Twitter, the most notable may be how brutally he uncovered the company’s waning fiscal and organization prospects. Twitter has operated at a loss for 7 of the nine years it has been a community corporation. Throughout deliberations around Mr. Musk’s supply, the enterprise been given no critical fascination from other suitors, persons with knowledge of the scenario have reported. Twitter’s board established that Mr. Musk’s offer you of $54.20 a share was the greatest it could acquire, suggesting it noticed no way to arrive at that rate on its own.
“The board’s absence of conviction in the company’s prolonged-phrase foreseeable future will linger in excess of personnel, partners and shareholders regardless of the consequence with Elon,” Mr. Goldman reported.
In new months, Twitter’s organization has deteriorated. Parag Agrawal, Twitter’s main executive, stated in a memo to staff members in May that the firm had not lived up to its small business and economic targets. To deal with the concerns, he pushed out the heads of product and earnings, instituted a selecting slowdown and began an hard work to bring in new customers and diversify into e-commerce. In April, the organization stopped giving a ahead-wanting fiscal outlook to buyers, pending the acquisition.
That trajectory is not likely to adjust as uncertainty around the deal discomfits advertisers, the principal source of Twitter’s revenue.
“Twitter will have problems in the around long term reassuring skittish advertisers and their consumers that they’re going to be stable,” claimed Angelo Carusone, the president of the watchdog team Media Issues for The us.
In what was an implicit dig at Twitter’s best executives, Mr. Musk explained he could have finished way better with the company. In a presentation to buyers in May, he mentioned he planned to quintuple the company’s earnings to $26.4 billion by 2028 and to arrive at 931 million consumers that similar year, up from 217 million at the close of past 12 months.
Mr. Musk emphasised Twitter’s rudderless money path in a letter filed to the Securities and Exchange Fee on Friday. The company’s “declining company prospective customers and monetary outlook” experienced given him pause, his lawyers wrote, specifically taking into consideration Twitter’s modern “financial overall performance and revised outlook” on the fiscal calendar year ahead.
Mr. Musk, who has more than 100 million followers on Twitter, has also jackhammered the solution, indicating it is not as eye-catching as other apps. He has repeatedly claimed, with out proof, that Twitter is overrun with a lot more inauthentic accounts than it has disclosed these accounts can be automatic to pump out poisonous or phony content material. (The firm has explained much less than 5 p.c of the accounts on its system are faux.)
His barbs about fake accounts have weakened believe in in Twitter, just as the enterprise prepares to moderate heated political discussions about an impending election in Brazil and the midterm elections this tumble in the United States, misinformation gurus reported.
In a further criticism of Twitter and the way it supervises articles, Mr. Musk vowed to unwind the company’s moderation procedures in the name of free of charge speech. In Could, he explained he would “reverse the long-lasting ban” of previous President Donald J. Trump from Twitter, allowing for Mr. Trump again on the social community. That riled up ideal-wing people, who have prolonged accused the business of censoring them, and renewed issues about how Twitter should really cope with debates above the limitations of cost-free speech.
Inside the company, employee morale has been battered, foremost to infighting and attrition, in accordance to 6 recent and previous employees.
Some of all those who remain explained they ended up relieved that Mr. Musk seemed to have made a decision against proudly owning the organization. Many others shared nihilistic memes on the company’s Slack or overtly criticized Twitter’s board and executives for entertaining Mr. Musk’s supply in the first position, according to inside messages viewed by The New York Situations. The temper amongst executives was 1 of grim dedication, two individuals with knowledge of their pondering stated.
Evan Williams, a founder of Twitter, tweeted on Friday that he wished for an stop to Mr. Musk’s antics.
“If I was continue to on the board, I’d be asking if we can just allow this total unattractive episode blow about,” Mr. Williams posted in response to the announcement that Twitter meant to sue Mr. Musk and force the offer ahead. “Hopefully which is the prepare and this is ceremony.”
Manu Cornet, a Twitter personnel, illustrated the temper with a cartoon that showed a shattered company that experienced been bumped off a shelf by Mr. Musk’s careless elbow. His caption: “You crack it, you obtain it!”
Ryan Mac and Isabella Simonetti contributed reporting.
Asset managers and brokerages are rushing into wealth management as “the loaded get richer” and a increasing tide of youthful do-it-you traders occur into inheritances, according to a new report.
Advancement of wealth administration is established to outpace that of asset administration by an ordinary of 2 per cent each individual 12 months till 2030, as Do it yourself buyers request support in turbulent marketplaces, according to investigate by Bain and Enterprise, a consulting team.
The shift into prosperity administration is a marked shift for common asset administrators. The market traditionally relied on self-directed brokerages such as Charles Schwab, Fidelity and Hargreaves Lansdown, or independent wealth supervisors to steer traders towards their solutions.
The intention is to draw in youthful prospects coming into new prosperity, and hold them as their needs grow a lot more sophisticated.
Do it yourself traders joined marketplaces in report figures around the past couple many years. Now, “we’re betting that all those self-directed investors will request advice”, claimed Stephen Hen, the main executive of old college asset supervisor Abrdn.
At the conclusion of 2021, Abrdn purchased the UK’s next-largest Do-it-yourself financial commitment organization, Interactive Investor**, to grab a more youthful, additional tech-savvy customer base.
“When the future generation inherits revenue from their dad and mom, they generally really don’t keep with their parents’ financial adviser,” Bird said.
The prosperity management sector, which combines asset management with economic preparing and suggestions, is expected to swell 67 for each cent from $137tn underneath management in 2021 to nearly $230tn globally by 2030, in accordance to Bain. Asset management, which is a lot more expense focused and now a saturated current market, is anticipated to expand by significantly less than 40 for each cent from $109tn to $152tn underneath administration about the identical period.
“If you have a prosperity administration ability you have a much more useful business enterprise,” said John Waldron, the main operating officer of Goldman Sachs, of the upcoming advancement in the sector. More youthful customers are “incredibly attractive to us”, Waldron claimed.
Self-directed investors experience a down sector, numerous for the initially time. “The rougher points get the more persons will need wealth administration,” claimed Markus Habbel, a associate at Bain who labored on the report.
Substantially of the development in desire for prosperity administration is since of mounting inequality and really concentrated prosperity, Bain identified. Globally, the investable assets of rich people is expected to double in practically each and every portion of the environment by 2030.
“The prosperous are finding richer, that is for certain,” Habbel mentioned.
Across the market, wealth administration expert services are choosing up steam. In June, Charles Schwab, one of the greatest US retail asset managers, renamed its 20-yr-previous private customer advisory the “Schwab Prosperity Advisory” to widen the appeal of its wealth administration providing to a broader client base. The average client enrolled in the programme has $2mn in investable belongings.
“We’d like them to choose edge of all the providers we offer and be shoppers for lifestyle,” mentioned Bryan Olson, the head of Schwab’s prosperity advisory organization.
“Hopefully the subsequent generation will be shoppers far too, and when that prosperity transfer usually takes spot we will now be engaged and aiding them.”
Numerous, this sort of as Abrdn, are building out their offerings as a result of acquisition.
In March, Royal Lender of Canada declared strategies to get just one of the UK’s major prosperity administrators, Brewin Dolphin, for £1.6bn to grow to be a dominant participant in the Uk prosperity industry nearly a year after JPMorgan bought online wealth management system Nutmeg for $1bn.
Goldman’s Waldron said the team was actively wanting for enterprises that expanded its prosperity management business’ electronic capabilities.
Habbel, of Bain, explained: “We assume a whole lot of M&A.”
**This posting has been amended to appropriate the name of the company bought by Abrdn to Interactive Trader
When we were younger, there was a point when someone told us that a recession was defined as two consecutive quarters of negative GDP growth, as measured by the Bureau of Economic Analysis (BEA).
Later, some of us learned that a recession is in fact designated and dated by the National Bureau of Economic Research (NBER), who make the call when they see a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The variables the bureau emphasizes include income, employment, personal consumption, and industrial production.1
If there’s any doubt that it’s the NBER who’s behind official recession calls, then consider this statement from the BEA:
While gross domestic product (GDP) is the broadest measure of economic activity, the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation. The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy.
So there you have it.
That said, this exercise of defining recessions isn’t very productive. It’s mostly just semantics, and it’s highly dependent on the metrics you decide to include and exclude in how you calculate economic activity.²
(Source: Getty Images)
One thing everyone can agree on is that much of the economy is slowing. In fact, the BEA says GDP contracted at a 1.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} rate in Q1, and the Atlanta Fed’s GDPNow model is pointing to a 1.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} contraction in Q2.
But some very visible aspects of the economy are holding up very well.
Total employment stood at 151.980 million, which is up 21.467 million from its low in April 2020. It’s now just barely below its pre-pandemic level of 152.504 million in February 2020.
The more timely unemployment claims data also suggests the jobs market is in pretty good shape.
Initial claims for unemployment insurance came in at 235,000 for the week ending July 2. While the number is up from its six-decade low of 166,000 in March, it remains near levels seen during periods of economic expansion.
So far, we’ve been looking at labor market metrics that reflect the past and the present. But what about the future?
Based on job openings data, it’s pretty clear that the demand for more labor continues to be very strong.
According to BLS data released Wednesday, there was a whopping 11.25 million job openings in May. That compares to the 5.95 million unemployed during the same period.
With nearly two job openings per unemployed person, this is a very tight labor market with a lot of demand for workers.
Why this is not a recession
“In recent decades, the two measures we have put the most weight on are real personal income less transfers and nonfarm payroll employment,” the NBER explained regarding its recession calls.
Indeed, according to Deutsche Bank’s analysis of recessions since 1939, the first month of a recession on average sees a decline in jobs. And we haven’t seen a decline in jobs since December 2020.
Regarding real personal income less transfers, that metric also continues be very strong. According to BEA data released June 30, it climbed to a record annualized rate of $14.5 trillion in May.
The BLS also has a metric called the index of aggregate weekly payrolls, which is the product of jobs, wages, and hours worked. It’s a rough proxy for the total nominal spending capacity of the workforce. This metric increased by 0.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} month-over-month in June to a record high of 172.4, reflecting a 9.4{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} jump from a year ago. Before the pandemic, the annual growth rate was trending at around 5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.
On an encouraging note regarding inflationary pressures, average hourly earnings in June increased by just 0.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from May. This reflects a 5.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} gain from a year ago, which is down from 5.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in May, 5.4{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in April, and 5.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in March.³
For now, the strong labor market is keeping the economy from tipping into a recession. But the longer the Fed has to tighten monetary policy aggressively, the more likely it becomes that people start to lose jobs as part of the economic pain required to rein in prices.
📈 Stocks climb: The S&P 500 rose 1.9{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} last week to close at 3,899.38. The index is now down 18.7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from its January 3 closing high of 4,796.56 and up 6.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from its June 16 closing low of 3,666.77. For more on market volatility, read this and this. If you wanna read up on bear markets, read this and this.
As I wrote last month, it appears that the markets will be held hostage by the Fed as long as inflation isn’t showing “clear and convincing” signs of easing. Read more about this here and here.
⛓ Supply chains are loosening: The New York Fed’s Global Supply Chain Pressure Index4 fell in June to its lowest level since March 2021, meaning supply chains are loosening.
(Source: The Global Supply Chain Pressure Index. (Source: NY Fed)
⛽️ Gas prices are falling: According to AAA, the average price of a gallon of regular unleaded gasoline was $4.684 on Sunday, down from $4.812 a week ago. Prices touched a record high of $5.016 on June 14.
Next week 🛣
Earnings season kicks off this week as the nation’s biggest banks announcing their Q2 financial results. JPMorgan Chase and Morgan Stanley announce on Thursday morning. Citi, Wells Fargo, PNC, U.S. Bancorp, and BlackRock announce on Friday morning. Investors will be listening carefully to see how business has performed as the economy cooled and as interest rates rose.
It’s also a busy week for economic data. Wednesday comes with the June consumer price index report, followed by the June producer price index report on Thursday. On Friday, we’ll get the June retail sales report, June industrial production report, and the preliminary July consumer sentiment survey results from the University of Michigan.
1. The NBER defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months. The committee’s view is that while each of the three criteria—depth, diffusion, and duration—needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another… The determination of the months of peaks and troughs is based on a range of monthly measures of aggregate real economic activity published by the federal statistical agencies. These include real personal income less transfers (PILT), nonfarm payroll employment, real personal consumption expenditures, wholesale-retail sales adjusted for price changes, employment as measured by the household survey, and industrial production. There is no fixed rule about what measures contribute information to the process or how they are weighted in our decisions.”
2. One widely known criticism of the GDP calculation is that net imports are a negative. In other words, if the U.S. economy is relatively stronger than international economies and that’s causing imports to outpace exports, then GDP suffers.
3. Fed chair Jerome Powell argued that one of the main forces driving up inflation was rising wages. The theory is that higher wages enable businesses to raise prices. If wages aren’t rising, then consumers wouldn’t be able to pay up for higher prices, which leads to a combination of demand cooling and prices coming down.
4. Here’s some info on how the index is constructed according to the NY Fed: “We use the following subcomponents of the country-specific manufacturing PMIs: ‘delivery time,’ which captures the extent to which supply chain delays in the economy impact producers—a variable that may be viewed as identifying a purely supply-side constraint; ‘backlogs,’ which quantifies the volume of orders that firms have received but have yet to either start working on or complete; and, finally, ‘purchased stocks,’ which measures the extent of inventory accumulation by firms in the economy. Note that in case of the U.S., the PMI data start only in 2007, so for the U.S. we combine the PMI data with those from the manufacturing survey of the Institute for Supply Management (ISM).“
