Household Pulse: The State of Cash Balances at Year End
About the “excess savings” buffer: From JP Morgan Chase’s database covering 7.5M families.
Low-income families saw rapidly depleting balance gains following the last round of stimulus. While balances in March 2021 were roughly 120 percent higher than two years before, balances at the end of 2021 were about 65 percent higher than 2019 levels, or just under $1,300. Although higher-income families also saw depletions in checking account balances since the last stimulus, trends relative to 2019 stayed stable, remaining roughly 30-35 percent elevated through the end of 2021. Thus, even among higher income families, cash balances remain elevated over and above secular pre-pandemic trends of roughly 7-11 percent per year.
At the end of 2021, balances among low-income families were still 70% higher (~+$560) than their 2019 levels. Higher-income families had balances 35% higher or ~$1700.
JPM Chase notes that
The charts do not account for the secular upwards trend of liquid balances prior to the pandemic. JPMorgan Chase Institute research shows that during normal times, checking account balances grew by roughly 11 percent per year among balanced samples of households comparable to the one used here. In this sample, cash balances in the first two months of 2020 had grown by roughly 7 percent on a year-over-year basis. Thus, 2021 cash balances could have been up by 14-23 percent compared to 2019 levels due to these trends, independent of the pandemic and corresponding government interventions.
Using 18.5% (the mid-point of the 14-23% normal growth), end of 2021 cash balances were 16.5% and 51.5% above normal for low and high income families respectively. Inflation took 6% off purchasing power since, leaving between $365 and $510 in “excess” real savings for the average family.
U.S. New Home Sales Fell in January
New single-family home sales fell 4.5% m/m (-19.3% y/y) to 801,000 at an annual rate in January with upward revisions to sales in both November and December. Sales in December were revised up to 839,000 from 811,000 previously, and sales in November were revised up to 749,000 from 725,000 previously. The most recent peak in sales was 993,000 in January 2021. The Action Economics Forecast Survey expected 809,000 sales in January.
By region, sales in December fell in three of the four major regions, rising only in the West (1.2% m/m for the third consecutive monthly gain). Sales in the Northeast slumped 10.7% m/m, their third consecutive monthly decline to the lowest level since April 2020. Sales in the Midwest declined 3.7% m/m in January after an outsized 39.7% m/m jump in December. Sales in the South decreased 7.4% m/m in January, their first decline in three months.
The median price of a new home rebounded in January, rising 7.0% m/m (+13.4% y/y), reversing a 7.0% m/m decline in December. The average sales price of a new home rose 3.0% m/m (+18.7% y/y) in January to a record high $496,900. These sales price data are not seasonally adjusted.
The supply of new homes for sale rose to 6.1 months in January from 5.6 months in December. The recent low was 3.5 months reached in August, September and October of 2020. The median number of months a new home stayed on the market fell to 2.5 months, tying the record low reached in October, from 3.3 months in December. These figures date back to January 1975.
There are 2 distinct housing markets: the rising South and West and the weak Midwest and Northeast. I grouped them below:
CalculatedRisk’s Bill McBride adds:
The inventory of completed homes for sale was at 37 thousand in January, up from the record low of 33 thousand in March through July 2021. That is about 0.6 months of completed supply (red line). This is about half the normal level.
The inventory of new homes under construction is at 3.9 months (blue line) – well above the normal level. This elevated level of homes under construction is due to supply chain constraints.
And 106 thousand homes have not been started – about 1.6 months of supply (grey line) – almost double the normal level. Homebuilders are probably waiting to start some homes until they have a firmer grasp on prices.
Fed Officials Signal March Rate Hike on Track Despite Ukraine Central bankers stressed the need to confront the hottest U.S. inflation in 40 years.
- Fed’s Waller Lays Out Case for Half-Point March Rate Rise The central bank governor says policy makers need to respond forcefully to “alarmingly high” inflation.
(…) “We constantly say we have the tools to fight inflation, and now we must demonstrate the will to use them,” Mr. Waller said in remarks at the University of California, Santa Barbara, on Thursday evening. Inflation “is far too high and needs to come down,” he said. (…)
Mr. Waller said he would prefer to raise short-term interest rates by 1 percentage point by the middle of the year. Mr. Waller echoed another member of the rate-setting Federal Open Market Committee, St. Louis Fed President James Bullard, who has advocated a similar approach. That would likely require the Fed to raise rates by at least a half-percentage point at one of its meetings in March, May and June. (…)
Several other Fed officials, including the two members of Fed Chairman Jerome Powell’s policy-making inner circle, have recently spoken in favor of an increase of a quarter-percentage point. Those officials, New York Fed President John Williams and Fed governor Lael Brainard, have pointed to how borrowing costs for households and businesses have already risen in ways that anticipate a series of Fed rate increases this year. (…)
Earlier on Thursday, two other officials who are set to vote on monetary policy at the Fed’s March meeting—Philadelphia Fed President Patrick Harker and Cleveland Fed President Loretta Mester —signaled they favored a quarter-point increase. (…)
- How War in Ukraine Threatens the World’s Economic Recovery Bloomberg Economics examines how the conflict could impact growth, inflation and monetary policy.
Russia’s invasion of Ukraine creates a new wrench in the gears of the global economy that will simultaneously worsen inflation pressures and damage growth prospects. That makes it a stagflationary shock, essentially making things worse on all economic fronts at once. (…)
- It’s not the kind of economic disruption that can be fixed with clever use of fiscal or monetary policy. It’s all pain, no gain. The effects are likely to be most severe in Europe, where economic ties with Russia and Ukraine are deepest.
- But through the deeply interconnected global financial and commodity markets, the ripples are set to spread worldwide. (…)
What we do know is that there will be continued and escalating financial sanctions on Russia, damage to Ukraine’s export industries, and high risk of further ripple effects from both physical and cyber-attacks.
- All of those amount to a negative supply shock — meaning that the productive capacity of the world economy is simply lower than it was a few weeks ago.
Higher energy prices — already evident in commodity markets — directly feed into higher inflation, but the risks are more sprawling and hard-to-calculate than that implies.
- The risk of disruption to Western European energy supplies and transportation networks, and the potential for cyber attacks contributes to the strain on global supply networks that have already been at their breaking point.
In European countries with close economic ties to Ukraine and Russia, the disruption could lower appetite for business investment and consumer demand. Who wants to build a new factory in Romania when warfare is taking place just down the road?
The United States is relatively insulated from the immediate economic damage, with its location an ocean away, strong domestic energy production, and robust (maybe too-robust) consumer demand.
- For the U.S., the direct impacts of the conflict are likely to push already-too-high inflation even higher. Those effects should on their own be short-lived, but the timing means they risk further entrenching Americans’ rising inflation expectations.
- Still, the Federal Reserve is likely to view the crisis as reason to move more gingerly in its monetary tightening campaign, as economic uncertainty grows, based on comments from several Fed officials this week.
The bottom line: Usually, geopolitical strife represents a short-term blip for financial markets and a buying opportunity for the gutsy. That could yet be the case with Ukraine, but the range of possibilities is ominous.
People Think Putin Has Called This Right and Will Get What He Wants
John Authers: I’m afraid I think this is the single best explanation [for yesterday’s rally]. The argument goes as follows:
- It looks as though the Russian forces are making their way with relative ease so far;
- The war aim seems to be decapitation of the regime, and installation of a Russian puppet. We can live with that; Ukraine has been run by Russian puppets before, and the world didn’t end;
- The natural gas price dooms any chance of a strong European response.
The Telegraph’s Ambrose Evans-Pritchard:
(…) We wake up to the sobering reality that Russia is too pivotal for the international trading system to punish in any meaningful way. It influences or determines everything from bread in the shops, to gas for Europe’s homes and power plants, to supply chains for aerospace and car plants, or soon will do if Kyiv falls. (…)
Ukraine turns Putin’s neo-Tsarist empire into the Saudi Arabia of food, controlling 30pc of global wheat exports and 20pc of corn exports. (…)
So while there is brave and condign talk of crippling sanctions against Russia, it is the West’s pain threshold that is about to be tested. My presumption is that Fortress Russia will endure this contest of self-reliance more stoically than Europe’s skittish elites. (…)
Russia is sitting on $635bn of foreign exchange reserves. It has a national debt of 18pc of GDP, one of the lowest in the world. It has a fiscal surplus and does not rely heavily on foreign investors to finance the state. This renders US sanctions against new issuance of sovereign bonds a mere nuisance. (…)
The West must fall back to the next line of defence, the Nato line from Estonia to Romania, and face the long arduous task of military rearmament. (…)
Holcim Plans Multiple Price Hikes to Combat Energy Costs Energy costs account for about 10% of operating costs, and high prices already prompted the Swiss cement producer to make a number of adjustments last year
Large, Late Merchandise Orders Are Raising Companies’ Inventory Costs Transit delays are stranding billions of dollars in goods in congested supply chains, leaving companies in a cash crunch
(…) A measure of inventory costs in the Logistics Managers Index, a monthly assessment issued by Arizona State University in collaboration with other university supply-chain programs, has increased sharply since 2020, reaching a peak of 89.4 in June 2021 that was nearly 26 points higher than the same month the year before. The measure of inventory costs was 84 in December compared with 63.4 in December 2019, before the impact of the Covid-19 pandemic buffeted supply chains. (…)
Flexport said in its Ocean Timeliness Indicator report for the week ended Monday that it took an average of 109 days to deliver a container from China to its final destination point in the U.S., up from between 40 and 60 days pre-pandemic. (…)
The cash bind is particularly severe for smaller firms.
For companies with $10 million to $50 million in revenue, average inventory grew to 103 days’ worth in the second quarter of 2021 from 64 days at the end of 2019, the latest period for which data was available, according to RapidRatings International Inc., which analyzes businesses’ financial health. Companies with over $100 million in revenue kept 81 days of inventory in the second quarter of 2021, about the same level as at the end of 2019. (…)
Vladimir Putin said nations “will face consequences greater than any you have faced in history” if they interfere in his invasion of Ukraine. This is a rare overt threat of nuclear attack. (Axios)
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