Businesses Expect Economy to Weaken, Fed’s Beige Book Says Consumers are starting to push back on price increases, Federal Reserve’s business contacts say
The Fed’s 12 regional reserve-bank districts said business contacts noted “growing concerns about weakening demand,” according to the central bank’s latest compilation of economic anecdotes from around the country, known as the Beige Book.
The U.S. economy expanded modestly on net, but conditions varied by district with four noting flat activity and two a decline. The Fed said the regions reporting declining activity cited “slowing or weak demand attributed to higher interest rates, inflation, and supply disruptions.”
Businesses reported that price pressures remained elevated through early October with some cost increases moderating. “Declines in commodity, fuel, and freight costs were noted,” the report said. (…)
Businesses across the country mentioned consumers pushing back against higher prices. (…)
- St. Louis Fed President James Bullard said he expects the central bank to end its ‘’front-loading” of aggressive interest-rate hikes by early next year and shift to keeping policy sufficiently restrictive with small adjustments as inflation cools. “You do have to think about what the reasonable level is,” said Bullard, who has become Wall Street’s gauge for any Fed policy pivots. (Bloomberg)
- Bond guru Jeffrey Gundlach said Treasury yields may peak between now and Dec. 31 at multiyear highs. (BB)
U.S. Housing Starts Weaken in September
Total housing starts fell 8.1% (-7.7% y/y) during September to 1.439 million units (SAAR) from 1.566 million in August, revised from 1.575 million. Starts in July were revised to 1.377 million from 1.404 million. Starts overall were 20.3% lower last month than the April 2022 peak. The Action Economics Forecast Survey expected 1.47 million starts in September.
Single-family starts weakened 4.7% (-18.5% y/y) in September to 892,000 after rising 4.0% to 936,000 in August. Single-family starts were 31.8% below their December 2020 peak. Multi-family starts declined 13.2% (+17.6% y/y) to 547,000 after rising 32.1% in August. They were 13.4% below the April 2022 peak. (…)
Building permits improved 1.4% (-3.2% y/y) in September to 1.564 million after falling 8.5% in August. Single-family permits weakened -3.1% (-17.3% y/y) to 872,000. It was the seventh consecutive monthly decline. Multi-family permits increased 7.8% (+23.4% y/y) to 692,000 after falling 14.7% in August.
- Housing valuations, measured in terms of the mortgage payment-to-income ratio, are hitting extreme levels.
Source: @TheTerminal, Bloomberg Finance L.P. via The Daily Shot
Jeff Bezos Says It’s Time to ‘Batten Down the Hatches’ as Economy Cools The Amazon founder said the economy is flashing warning signs, joining other corporate leaders who have cautioned that the U.S. is headed for a recession.
Americans have cut back on buying luxury goods like designer clothing and accessories over the past two months, according to data from three credit-card companies, raising questions over the sector’s resilience.
Citigroup , Mastercard (MA.N) and Bank of America data released this month showing lower U.S. spending just weeks ahead of the holiday shopping season could raise concern among investors that the industry’s post-COVID-19 pandemic boom is at risk of petering out. (…)
Separate estimates from the three credit-card companies show that Americans cut spending on luxury goods in August by 2% to 4%, and in September by 5% to 6%, versus a year earlier.
Spending cuts on luxury goods were sharpest among middle-income Americans with yearly incomes of $50,000 to $125,000, and those with yearly incomes of less than $50,000 a year, according to research by Bank of America, which analyzed debit and credit card purchases by roughly 16% of U.S. households.
In 2021, people with less than $50,000 in annual income represented 39% of U.S. spending on luxury goods, according to BofA, while those with incomes of $50,000 to $125,000 represented 34%. (…)
According to Citi, both the number of U.S. individuals buying luxury goods, and the amount they spent, fell in September. Citi measured spending across 18 million accounts.
Mastercard’s “SpendingPulse” report, meanwhile, measuring retail sales across payment types, showed luxury purchases, excluding jewelry, were down 5.2% in September, year-on-year, while spending on restaurants and air travel were on the rise. (…)
Prologis Signals Caution in Industrial-Property Development The overall warehousing sector, which has been booming during the pandemic as retailers respond to changing consumer purchasing patterns, is already showing signs of peaking, with overall leasing rates slipping last quarter.
Inflation Surprise of 6.9% Shifts Canada Rate Bets, Jolts Yields
Canada’s inflation rate came in stronger than expected in September despite lower gasoline prices, with stickier underlying pressures likely to keep the Bank of Canada on an aggressive rate-hiking path.
The consumer price index was up 6.9% from a year ago, higher than economist predictions for a 6.7% gain, Statistics Canada reported Wednesday in Ottawa. During the month of September, prices rose 0.1% versus expectations for a 0.1% decline.
The data caused traders to shift bets toward a larger rate hike next week, with markets now pricing in a 60% chance of a 75-basis-point increase from the Bank of Canada. That would take the benchmark overnight lending rate to 4%, where it hasn’t been since early 2008. (…)
So-called core inflation — which excludes more volatile prices to generate a better gauge of underlying pressures — remained elevated. The average of the Bank of Canada’s three core measures was 5.3%, matching a revised number for August. (…)
Prices for food purchased from stores grew 11.4%, the fastest year-over-year pace since August 1981. Those prices have been increasing at a faster rate than overall inflation for 10 consecutive months. (…)
Average hourly wages rose 5.2% on a year-over-year basis last month, meaning that prices are still rising faster than paychecks, the agency said.
- Core CPI rose 0.4% MoM after +0.3% in August. That’s 4.3% a.r..
- Our summary indicator of [Euro Area] underlying inflation increased markedly by 101bp in September to 4.77%yoy from its July value of 3.76%, while core inflation increased 45bp to 4.75%yoy. The increase in our summary measure in September was broad-based across economic and most statistical measures of underlying inflation. (Goldman Sachs)
- Several proxies suggest that #food prices growth (YoY) should normalize downward in the coming months.
- Used car prices are now down 10% year-over-year, the biggest decline since the financial crisis. (The Daily Shot)
Yen Breaches 150 a Dollar, a 32-Year Low
While th US10Y yield keeps rising:
Refinitiv via The Market Ear
CREDIT STRESS
The latest: BofA’s Credit Stress Indicator (CSI) just breached a level — 75, on a scale of 0 to 100 — it hasn’t hit since April 2020.
The CSI measures stress in U.S. credit markets, focusing mostly on high-yield bonds (the riskiest segment with the lowest credit ratings), and looking at components like distress, volatility and access to funding.
Reaching the 75th percentile on the scale is considered a “critical zone” of credit stress. In the past, it’s coincided with significant market dysfunction, says Oleg Melentyev, credit strategist at BofA. When markets aren’t functioning smoothly, big price swings — and investor losses — are more likely. And companies have a harder time accessing capital.
Meanwhile, an index of Treasury market volatility is just shy of its COVID high; and one index of investment-grade bond market distress is at June 2020 level.
As shown yesterday from Haver Analytics:
The 6-month change in Haver’s aggregation of policy rates in advanced economies topped 2% in September. That’s the fastest pace of interest rate tightening in our aggregation’s history, which kicks off in the early 1980s.
Policy rates in advanced economies
One of the factors that is further tightening global monetary conditions is the ongoing appreciation in the US dollar. As our final chart this week suggests an appreciation in the trade-weighted value of the US dollar typically accompanies weaker growth in emerging economies.
Still, the strength of the dollar remains impressive – indeed arguably too impressive – relative to those EM growth fundamentals. This suggests that other factors (e.g. rising risk aversion) have been playing a big role in driving the dollar up.
The US dollar versus EM growth surprises
