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highlights · 132
Last but not least, a key one: are governments overcooking fiscal policy? Yes! 👉 the proportion of global fund managers believing that global fiscal policy is “too stimulative” is at its highest since the survey began (in the wake of the 2008 GFC)
The State of the US Economy in 75 Chartsin November 2022 they were expecting a recession at similar levels to the 2007-2009 GFC and the 2020 Covid pandemic … yet we had the most anticipated recession that never materialized …
The State of the US Economy in 75 Charts👉 the money is made in the ass sitting in general, not in the 'action' after each data point... have to swing for the right pitch at the right time, not be active like a Duracell rabbit 😉 ... a portfolio is like soap, the more you touch it, the more it shrinks ...
The State of the US Economy in 75 Charts‘What is the most likely outcome for the global economy in the next 12 months?’? A key survey question for global fund managers via BofA, odds for:
The State of the US Economy in 75 ChartsGlobal Geopolitical Risk Index (GPR)
The State of the US Economy in 75 Chartsit has shown that a quick increase in the GPR index could have strong impact on private investment, labor market, economic growth, and the stock market
The State of the US Economy in 75 Charts👉 dropping recession probability with a Manufacturing Cycle index back into positive territory at 0.08 from 0.01 previously = good news
The State of the US Economy in 75 ChartsCombining the Global Recession Probability with Manufacturing Cycle Index
The State of the US Economy in 75 ChartsGlobal Recession Probability via MacroMicro
The State of the US Economy in 75 Charts1. Global economic growth typically hovers around 3%, which is considered a relatively normal level. A significant drop in global economic growth, falling well below 2%, serves as a potential warning sign of a global economic recession 2. Adjustments in economic expectations often coincide with short-term economic fluctuations, providing a means to grasp turning points in the economic cycle. When economic expectations cease to decline, it typically signifies that the worst phase of economic distress has passed (the bottom should be about there)
The State of the US Economy in 75 Chartsthe probability of a US recession in 2024 is low, big fiscal spending is ongoing and on top we have an election year
The State of the US Economy in 75 Chartsthe higher the index, the higher the risks are (note, inverted in this chart)
The State of the US Economy in 75 ChartsN.B. positive values represent headwinds to GDP growth and negative values represent tailwinds. For example, 1% means that financial conditions will have a 1% drag on GDP growth over the next year.
The State of the US Economy in 75 ChartsFED Financial Conditions Impulse on Growth (FCI-G)
The State of the US Economy in 75 ChartsEBP is an effective indicator for evaluating investor sentiment or risk preference in the corporate bond market. The higher the EBP, the higher the risk in the bond market.
The State of the US Economy in 75 ChartsFED Excess Bond Premium Recession Probability 👉 at 14.92%, dropping from 18.22% - also, showing a low recession probability
The State of the US Economy in 75 ChartsNBER Recession Indicators Drawdown 👉 at 0% (previously 0%), no sign of recession here either
The State of the US Economy in 75 Chartsthe Leading index has been going down since a while given the negative growth from above, yet note the following: unlike in the past, this direction is not confirmed by the lagging or coincident indices
The State of the US Economy in 75 Chartsseen as a leading indicator as the US economy
The State of the US Economy in 75 Chartsthe Conference Board Leading Economic Index (LEI) is historically a good gauge of where we are in the business cycle ... also picking up lately (less negative) after being negative since July 2022!
The State of the US Economy in 75 ChartsBackground: FED economist Claudia Sahm approach - if the 3-month moving average of unemployment rate exceeds 0.5% compared to the previous year's low, the economy is in a recession or will enter one soon (condition met in past recessionary periods).
The State of the US Economy in 75 Chartsthe probability of recession for the next quarter is also referred to as the "Anxious Index", which accurately predicted every economic recession identified by the National Bureau of Economic Research (NBER) since 1970
The State of the US Economy in 75 ChartsPhiladelphia FED Recession Probability Index - cooling off materially after in 2022 many market participant expected a recession - yet this metric never breached not even the 50% chance, the maximum in 2022 was 47.17%
The State of the US Economy in 75 ChartsSource: FED’s Survey of Household Economics and Decisionmaking
The State of the US Economy in 75 ChartsConference Board (CB) Consumer Confidence Index (blue): at 102 from 97, not yet above pre-pandemic times, but very well recovering since 2020
The State of the US Economy in 75 Chartsoverall headlines are more doom & gloom than they should when it comes to the real estate market overall … but for clicks and views for advertising money they will keep rolling … and once interest rates, yields & mortgage rates will go down, headlines will find something else to beat the doom & gloom drum …
The State of the US Economy in 75 ChartsLast but not least, Residential Mortgage Debt VS Homeowner’s Equity
The State of the US Economy in 75 ChartsWhat about Mortgage Applications (MBA)? New home-owners anyone?
The State of the US Economy in 75 ChartsIsolating the S&P/Case-Shiller National Home Price Index (blue) and adding it’s growth year-over-year (yellow)
The State of the US Economy in 75 ChartsHome Prices via the big 3 housing indices: S&P/Case-Shiller National (blue), S&P/Case-Shiller 20-City Composite (black), FHFA House Price Index (orange)
The State of the US Economy in 75 ChartsMoreover, are residential constructions halted or dropping ? Not at all! 👉 1,36 mil privately‐owned housing starts which is above the 1,22 mil 20-year average
The State of the US Economy in 75 Charts👉 if 42% of homes (likely more in 2023) are owned outright + 71% of mortgages below 4%, we can deduct that in excess of 80% of homeowners do not feel much the effect of high current mortgage rates … let that sink in!
The State of the US Economy in 75 Charts👉 distribution of mortgages by interest rates paid: 91% of people have a rate BELOW 5% which is close to the 20-year median of 4.76%.
The State of the US Economy in 75 ChartsFED will also naturally lower rates
The State of the US Economy in 75 Chartsand from there naturally the 30-year mortgage rates (blue) will likely be cooling off as well from a 20-year record of 7.79% … for now it is 6.99%
The State of the US Economy in 75 ChartsWhen the real interest rate is greater than the neutral interest rate, the monetary policy has a tightening effect and can suppress inflation. On the contrary, when the real interest rate is lower than the neutral interest rate, the monetary policy stance tends to be loose, which may fuel inflation.
The State of the US Economy in 75 ChartsNeutral/Natural Rate of Interest vs Real Fed Funds Rate (I really like this one)
The State of the US Economy in 75 ChartsNew York Fed’s April 2024 Survey of Consumer Expectations - median inflation expectations hovering between 2.6% to 3.3% rising lately at short and longer-term horizons while coming in lower at the medium term. Specifically:
The State of the US Economy in 75 Charts= 2.31% with the same message: inflation cooling-off and heading back to target
The State of the US Economy in 75 ChartsThe 5-year forward inflation expectation rate (market's expectation of inflation over the next 5 years)
The State of the US Economy in 75 ChartsHow I and you should use this in the real world? 👉 check when the 1-year disconnects materially from the 5-year as seen since 2021 right before we got the big inflation - in reverse now, we’ll likely see inflation stabilise
The State of the US Economy in 75 Charts1-Year Inflation Expectations metric (blue) points to a 3.3% figure after the 2022 parabolic spike
The State of the US Economy in 75 Charts5-year ahead expectations (red) stable at 3%
The State of the US Economy in 75 ChartsCore Inflation Rate (Core CPI, red) a bit higher at 3.6% relative to the 3.4% CPI (blue), though both trending down as inflation gets more and more normalised
The State of the US Economy in 75 ChartsUS CPI Y/Y (blue) & M2 growth Y/Y (red)
The State of the US Economy in 75 ChartsFirst, before any cut, the FED needs to be confident inflation is coming down properly and it can be sustainably around the target, namely “average of 2% over the long run.”.
The State of the US Economy in 75 Chartsas the 2-year yield playing with going down … expect FED funds rate to follow
The State of the US Economy in 75 ChartsFED funds target rate naturally highly correlated with the 2-year yield
The State of the US Economy in 75 Charts2 cuts of 25 basis points priced in / expected by January 2025
The State of the US Economy in 75 Chartsprobability of a rate cut 1.3% for the June 11-12 FED FOMC meeting
The State of the US Economy in 75 Charts