Households Burn Through Last of Pandemic Savings The combination of high prices and the end of pandemic relief programs is eating into household savings.
Americans have spent down about 35% of the extra savings they accumulated during the pandemic as of mid-January, according to an estimate from Goldman Sachs. By the end of the year, the company forecasts that they will have exhausted roughly 65% of that money. (…)
His team at Goldman Sachs estimates that the monthly saving rate will rise modestly by the end of the year, to about 4.5%. (…)
Among Bank of America customers with a household income below $50,000 a year, the median balance in checking and savings accounts peaked in April 2021, according to an analysis by Bank of America Institute, a think tank within the bank. Between then and November 2022, that figure fell 36%, versus 14% for customers with a household income between $100,000 and $150,000 a year.
Still, across all income brackets, median balances remained elevated compared with shortly before the pandemic, in February 2020. (…)
Need proof of excess savings?
- Tom Brady Retired on a Beach. Now, an Auction for a Jar of Sand Nears Six Figures. Auctions for beach sand said to be from the exact spot the NFL legend filmed his retirement video are popping up on eBay
(…) “Tom Brady’s exact retirement spot—Bottled Sand,” says an auction announcement posted on eBay. As of Sunday, the auction has 119 bids, with the top one currently at $99,900. The auction for this jar ends Feb. 12.
(…)
“You will be owning the very land the GOAT retired on,” the ad says, referring to the acronym for “greatest of all time.” (…)
While the seller has only put one jar up for sale on eBay, competitors have joined the game.
At least seven other similar eBay ads have appeared on the auction site. Although there is no way to confirm the sand is from the beach where Mr. Brady shot his video, the jars have been listed at prices ranging from $100 to $24,000. (…)
Fed loan officer survey finds tighter loan standards, reduced demand
Lending officers at major banks told the Federal Reserve that in the final three months of last year they tightened standards and saw reduced demand across a wide array of business and consumer credit fronts.
The Fed reported Monday in its January Senior Loan Officer Opinion Survey that the threshold to get credit rose for commercial and industrial firms, as well as commercial real estate borrowers. At the same time, these prospective borrowers reduced their demand for loans.
On the consumer front, survey respondents said that real estate and related lending standards got tighter amid declining demand for the same period. The same dynamic played out for auto, credit card and other types of consumer lending.
The survey also found that the trends that played out across bank lending in roughly the final quarter of 2022 will dominate 2023. “Banks, on balance, reported expecting lending standards to tighten, demand to weaken, and loan quality to deteriorate across all loan types.” (…)
The latest data points to a softening economy. “There were unfavorable changes across many details” of the survey, said Daniel Silver, an analyst at J.P. Morgan, who added the data “looks consistent with an economy that is weakening.” (…)
Fed’s Bostic Says Higher Peak Rate on Table After Jobs Blowout
(…) The Atlanta Fed president, who doesn’t vote on policy this year, said officials will need to understand if the jobs report was an “anomalous reading” in which case he would be “inclined to look through this a bit.” (…)
Anomalies in the January NFP report are numerous (from various sources including my own research):
- Something is happening to the data here in January. Since 2020, it has consistently lined up as a huge month for the payroll data: +334k in 2020, +494k in 2021, and +364k in 2022. And now +517k in 2023. The month of January has somehow managed to line up as 6x stronger than the average for all the months over the past three years.
- The biggest anomaly, perhaps, was that a 471k plunge in the retail sector translated into a +30k seasonally-adjusted run-up, the best number since August — even though retail sales have slid in three of the past four months.
- In January, the BLS adjusts for the new population count. Allowing for this adjustment (+954k last year), and putting the companion Household survey on a comparable footing as the Payroll data, employment only rose +44k in January.
- Average hours worked jumped in January (although not in the Household survey), inconsistent with the sharp increase in part-time employment.
- Full-time jobs accounted for only 54% of all new jobs in January. In fact, full-time jobs are down a cumulative 166k since June 2022 and have not increased at all since March. Historically not a good sign:
US full-time and part-time workers (millions)
Source: Macrobond, ING
- Services employment jumped 471k in January (91% of the total increase). Yet, the S&P Global Services PMI remained very weak in January, signalling “a solid contraction in business activity across the US service sector” (…) and “the pace of employment growth slowed further amid reports of cost-cutting efforts”. True, the ISM-Services said otherwise but its employment index was unchanged with 20.4% of services industries reported higher employment and 24.6% reporting reduced employment.
- The ISM also said that 10 services industries reported growth in January, down from 11 in December, 13 in November and 16 in October. Yet, its PMI index is up during that period! Meanwhile, S&P Global’s Services PMI is down and in contraction territory.
- We know that the ISM survey favors the largest companies while the S&P Global survey is more economy-weighted. It so happened that the ADP jobs report for January highlighted that small business employment dropped 75k in January, its fourth consecutive decline.
- And the NFIB small business hiring intentions was at 19% in January versus 20% for the six-month average. No change!
- Finally, there is the Homebase employment data, a labour scheduling and time tracking tool used by tens of thousands of local businesses that are often individually owned and primarily consist of restaurant, retail and personal services – so reflect the experiences of businesses that won’t be tracked by the larger survey organisations.
Homebase number of workers versus median for the period Jan 4- Jan 31 2020 (% difference)
Source: Macrobond, ING
Morgan Stanley’s macro guru Wilson reminds us about forward EPS growth that went negative last week. He writes: “…This has only previously happened 4 times over the past 23 years. In each prior instance (2001,2008,2015,2020), equities have faced significant price downside associated with the shift from positive to negative earnings growth…historically, the majority of the price downside in equities comes after forward EPS growth goes negative.” Earnings recession is basically not priced in according to Wilson. (via The Market Ear)
MS
Here’s a variant using the Rule of 20 Fair Value [trailing EPS x (20 – inflation)]. Fair Value (red) is influenced by trends in trailing 12-m EPS and inflation. When the S&P 500 is above/under the Rule of 20 Fair Value, it means overvaluation/undervaluation but trends in EPS and inflation are meaningful for the index cyclical direction.
Here’s a snapshot since 1999. Trailing EPS peaked last October at $222.37. They are now $221.88. If analysts estimates stand, EPS should decline to about $219 after Q1’23 and around $216.5 after Q2, a small 2.6% decline from the peak. At 5% inflation, the R20 Fair Value would be 3250. At 4%: 3465. At 3.0%: 3680. Again, assuming current estimates hold.
JPMorgan’s Kolanovic Calls Latest Stock Rally a Bear-Market Trap
JPMorgan Chase & Co. strategist Marko Kolanovic reiterated Monday that investors should fade last week’s Federal Reserve-induced stock-market rally, arguing that the US economy’s disinflationary process could just be “transitory.”
Kolanovic sees the first three months of the year likely marking an “inflection point in the market,” with an air pocket during the second and third quarters, he wrote in a note to clients. That will be followed by renewed deterioration in fundamentals through the end of the year since the central bank will likely keep interest rates high for some time, he added. (…)
One of Wall Streets biggest optimists through much of last year’s market selloff, most of Kolanovic’s 2022 calls didn’t work out. He has since reversed his view, cutting his equity allocation in mid-December due to a soft economic outlook for this year. Last month, he said the economy was headed for a downturn. The bank reduced its recommended equity allocation once again due to fears of a recession and central-bank overtightening. (…)