Employment, inflation, Fed policy, supply chain strain and other key indicators continue to hover in negative territory.  As in my June post, there is just too much going on to focus on one topic or every topic, so here are comments on some topics of more interest.  

Fed Rate Hikes

The Fed Funds Rate is up 1.50% since January 2022, to 1.75%.  We are expecting another .75% increase this month, and another .50% in September and November.  The Fed’s target is a range of 3.25% to 3.50% at year end.  Assuming a 6-month lag in the time it takes for these increases to be seen in the data, the March increase is still not showing up.  If the economic data show creaks in several sectors now, says to me there are other forces working to slow the economy.  I doubt the Fed has the political armor to take a more measured approach to increases, meaning pressure to act on the data 6 months before it’s available.  Over reaction will cause a downturn in the economy in nine months.

GDP Growth

Our economy grew significantly before Covid and during the 2021 restart of activity.  This year it contracted ~1.60% for the 1^st quarter and, according to the NY Fed GDPNow estimates, contracted another ~1.50% in the 2^nd quarter.  This puts us in a traditionally defined recession, yet we have record low unemployment, which does not fit the pattern.  I think over the next 12 months our labor problems will subside and the economy will be priming to grow.

Housing

The housing market is a fun example of how Supply, Demand and Price really work.  During the Covid lockdown many families choose to alter their lifestyle, which lead to many buyers looking for a different house.  The lockdown included the workers and suppliers to the construction industry.  As a result, the supply network is not what it was.  Every business at every level in the network is still adjusting to new ways to function. 

Everyone wanting to move, building supplies are scarce and thus expensive.  Demand was too great, supplies severely limited, so we saw housing price itself out of many people’s range.  

That demand is subsiding as families wait for something affordable.  As witness, mortgage rates are drifting down slightly and the inventory of houses for sale is drifting up.  Supply is increasing.  Patience will pay off.

Jobs & Employment

For the last three months, we have added an average 318,000 jobs in each.  We are seeing companies rationalizing they’re hiring and leaning out when their markets drop.  

I see a massive worker reshuffling going on.  The great walkout was the signature event, but with 10 million openings in the economy and roughly 7 million unemployed to fill them, workers have the advantage in finding ‘what they want’.

That’s my comments on a couple sectors of the economy.  Please feel free to contact me with questions or suggestions for sectors you are interested in but can’t dive into the detail.