A technical recession despite the labor market strength?

The Daily Shot: 27-Jul-22
• The United States
• The United Kingdom
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• Food for Thought

The United States

1. The Conference Board’s July consumer confidence index came in below forecasts as the “present situation” indicator edged lower.

• There is a bit more unease with the jobs market.

– The contributions to the headline confidence index:

Source: Mizuho Securities USA

– The labor differential (“jobs plentiful” – “jobs hard to get”):

– Income expectations:

Source: Economics and Strategy Group, National Bank of Canada

• Confidence among high-income Americans is declining rapidly, which could impact spending.

Source: @TheTerminal, Bloomberg Finance L.P.

• Buying conditions for high-ticket items have deteriorated.

• The gap between the Conference Board’s and the U. Michigan’s sentiment indices remains wide.

Source: @TheTerminal, Bloomberg Finance L.P.

• The “present situation” vs. “expectations” index spread tends to peak ahead of recessions.

Source: Economics and Strategy Group, National Bank of Canada

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2. Households tend to expect higher gas prices over the next year after price dips. That may weigh on consumer spending.

Source: Morgan Stanley Research

3. The Treasury curve hasn’t been this inverted since 2000.

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4. The Richmond Fed’s manufacturing index unexpectedly bounced this month, bucking the trend.

• The index of expected orders is back in positive territory.

• Price pressures remain extreme.

• Fewer companies are boosting wages.

• Supply bottlenecks are gone.

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5. Next, we have some updates on the housing market.

• New home sales dipped below 2016 levels last month and are now about 20% below the June 2021 volume.

– Supplies have risen substantially.

Most of the supply of new homes is not yet completed (2 charts).

Source: Wells Fargo Securities

Source: Oxford Economics

– The median price of new homes tumbled in June.

And given the increase in inventories, there are further declines ahead.

Source: Pantheon Macroeconomics

Here is the distribution of new homes by sales price.

Source: @M_McDonough

• Home price appreciation (existing homes) slowed in May but remained robust.

– Gains have been broad-based.

Source: Economics and Strategy Group, National Bank of Canada

– Given the tight housing supplies, home price appreciation has not been an outlier.

Source: @calculatedrisk

– The gap between prices and wages continues to widen. That worked fine when mortgage rates were 2.5%, but not anymore.

Affordability has deteriorated sharply.

Source: Yardeni Research

• The Conference Board’s buying climate for houses plunged this month.

• The number of active listings has been moving up.

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6. A GDP contraction in the second-quarter will qualify as a technical recession (two consecutive quarters of negative GDP growth). Given the labor market strength, such an outcome would be highly unusual.

Source: Numera Analytics