Month-In-Review: August 2023

August 2023

Federal Reserve Chairman Jerome Powell didn't parse words at the annual Fed Policy Symposium in Jackson Hole, Wyoming.?Setting a very hawkish tone, Powell was clear that the Fed maintains a 2% inflation target, eradicating any notion that 3% was the new 2%. “Two-percent is and will remain our policy target,” Powell said reiterating that price stability is needed for the economy to work for everyone.? “We will keep at it until the job is done.” ?

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But while Powell noted concerns that the economy has in fact not slowed enough, and “persistent signs of above trend growth could warrant further policy tightening," at least some further improvement in (core) inflation and indications of a cooler labor market quickly prompted a more patient tone from other Fed officials, indicating a likely second-round pause in September.??

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Market Activity and Commodities

·?????? Equities – Stocks ended lower in August, breaking a five-month winning streak. Beginning at 4,588.96, the S&P 500 slid 1.8% in August, closing at 4,507.66 and posting its first monthly loss since February. Additionally, the Nasdaq declined 2.2% in August, closing at 14,034.97. The Dow, meanwhile, fell 2.4%, declining from 35,559.53 to 34,721.91, marking its worse month since May. Year-to-date, however, the S&P 500 gained 17.9%, the Nasdaq surged 34.1%, and the Dow rose 4.8%.

·?????? Treasuries – Treasury yields end mixed in August for the second consecutive month. The 10-year Treasury yield jumped 15bps from 3.96% to 4.11%. The 2-year Treasury yield, however, ended August down 1bp at 4.87%.

·?????? Oil & Gas????????????

o?? (Aug 30) – Following a sharp increase in July, crude prices steadied in August at around $80 a barrel.

National Growth and Outlook

• NFIB Small Business Optimism (Aug 8) – The NFIB Small Business Optimism Index rose from 91.0 to 91.9 in July, slightly more than the expected gain to 91.3 and an eight-month high.

·?????? Leading Index (Aug 17) – The Leading Index declined 0.4% in July, as expected and following a 0.7% decrease the month prior.

·?????? Chicago Fed National Activity Index (Aug 24) – The Chicago Fed National Activity unexpectedly rose from -0.33 to a reading of 0.12 in July, the highest since January. According to the median forecast, the index was expected to rise to -0.22. The Chicago Fed Index draws on 85 economic indicators; a reading below zero indicates below-trend growth in the national economy and a sign of easing pressures on future inflation. In July, 45 of the 85 monthly individual indicators made positive contributions, while 40 made negative contributions.

·?????? GDP (Aug 30) – GDP was unexpectedly revised lower from a 2.4% gain to a 2.1% rise on an annualized basis in the second-round Q2 report, following a 2.0% gain in the first quarter. At 2.1%, this still marks the strongest quarterly pace since Q4 2022. According to the median estimate on Bloomberg, activity in the second three months of 2023 was expected to be unrevised at a 2.4% gain. In the details of the report, personal consumption was revised higher a tenth of a percentage point to a 1.7% gain in the second-round Q2 report, following a 4.2% gain in Q1. Goods consumption, meanwhile, was unrevised at a 0.7% gain. Durable goods consumption was revised down from a 0.4% gain to a 0.3% decrease, while nondurables consumption was revised up from a 0.9% gain to a 1.2% increase. Services consumption was revised up a tenth of a percentage point to a 2.2% gain in the second-round Q2 report, following a 3.2% rise in Q1. Gross private investment, a gauge of business spending, was revised lower from +5.7%, to +3.3%, still the largest gain in two quarters. Fixed investment was revised down from a 4.9% rise to a 3.9% gain, following four consecutive quarters of decline. Nonresidential investment, including office buildings and factories, was revised lower from a 7.7% gain to a 6.1% increase due to downward revisions to equipment investment from +10.8% to +7.7%, and to intellectual property investment from +3.9% to +2.2% in the second-round Q2 report. On the other hand, structures investment was revised up from a 9.7% gain to an 11.2% increase. Residential investment was revised higher from a 4.2% decline to a lesser 3.6% decrease, the ninth consecutive quarter of decline. On the trade side, exports were revised up from a 10.8% drop to a 10.6% fall, and imports were revised higher from a 7.8% decline to a 7.0% decrease in the second-round Q2 report. Finally, government consumption was revised up from a 2.6% gain to a 3.3% increase. Federal spending was revised up from +0.9% to +1.2%, national defense spending was revised higher from +2.5% to +2.8%, and state and local spending was revised up from +3.6% to +4.7% in the second-round Q2 report.

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Employment

• JOLTS (Aug 1) – The number of job openings according to JOLTS – the Job Openings and Labor Turnover Survey – dropped from 9.62M to 9.58M in June, the lowest since April 2021. According to the median forecast, job openings were expected to decline to 9.60M. The number of job openings according to JOLTS – the Job Openings and Labor Turnover Survey – declined from 9.2M (revised down from 9.6M) to 8.8M in August, the lowest reading since March 2021. According to the median forecast, 9.5M job vacancies were expected in August.
• ADP Employment Report (Aug 2) – ADP reported that private-sector employment rose by 324k in July, well surpassing the expected 190k gain but down from a 455k increase in June.
• Jobless Claims (Aug 3) – Initial jobless rose 6k from 221k to 227k in the week ending July 29, a two-week? high. Continuing claims, or the total number of Americans claiming ongoing unemployment benefits, meanwhile, increased from 1.68M to 1.70M in the week ending July 22. (Aug 10) – Initial jobless claims rose 21k from 227k to 248k in the week ending August 5, a five-week high. On the other hand, continuing claims, or the total number of Americans claiming ongoing unemployment benefits, fell from 1.69M to 1.68M in the week ending July 29.? (Aug 17) – Initial jobless claims declined 11k from 248k to 239k in the week ending August 12, a two-week low. On the other hand, continuing claims, or the total number of Americans claiming ongoing unemployment benefits, rose from 1.68M to 1.72M in the week ending August 5, a four-week high. (Aug 24) – Initial jobless claims fell 10k from 240k to 230k in the week ending August 19, a three-week low. Continuing claims, or the total number of Americans claiming ongoing employment, fell from 1.71M to 1.70M in the week ending August 12.

o?? (Aug 31) – initial jobless claims unexpectedly fell 4k from 232k to 228k in the week ending August 26. According to the median forecast, jobless claims were expected to rise to 235k. Continuing claims, however, rose from 1.697M to 1.725M in the week ending August 19.

• Nonfarm Payrolls (Aug 4) – Nonfarm payrolls rose by 187k in July, less than the 200k gain expected according to Bloomberg, and pulling the three-month average down from 228k to 218k. June payrolls, meanwhile, were revised lower from a 209k gain to a 185k increase. With additional revisions to previous months, the?overall change in nonfarm payrolls (July data + net revisions) was just 138k. In the details of the report, private payrolls rose by 172k in July following a 128k gain in June. Goods-producing payrolls rose by 18k due to a 19k rise in construction payrolls. Manufacturing payrolls, however, fell 2k in July following a 6k gain the month prior. Private service producing payrolls rose by 154k in July, up from a 97k gain in June. Education and health payrolls led the gain in service payrolls in July, rising 100k following a 71k rise the month prior. Also, leisure and hospitality payrolls rose 17k, and financial payrolls gained 19k. Additionally, trade and transport payrolls rose 18k, due to a 9k gain in retail trade payrolls. On the other hand, professional and business services payrolls fell 8k, due to a 22k drop in temporary help payrolls, and information payrolls declined 12k in July. Finally, government payrolls rose by 15k in July following a 57k gain in June.
• Participation Rate (Aug 4) – The civilian labor force rose by 152k following a 133k rise in June. Therefore, the participation rate remained at 62.6% in July for the fifth consecutive month, as expected and the highest since March 2020. At 62.6%, however, the participation rate is still below the pre-pandemic rate of? 63.3%.
• Unemployment Rate (Aug 4) – Household employment rose by 268k in July following a 273k increase the month prior. With a 152k rise in the labor force, the unemployment rate unexpectedly fell a tenth of a percentage point from 3.6% to 3.5% in July, a three-month low. According to the median forecast, the unemployment rate was expected to remain at 3.6% for the second consecutive month.
• Average Hourly Earnings (Aug 4) – Average hourly earnings rose 0.4% in July, a tenth of a percentage point more than expected and following a 0.4% increase in June. Year-over-year, wages rose 4.4% for the second consecutive month.
• Average Weekly Hours (Aug 4) – The average workweek ticked down from 34.4 to 34.3 hours in July, a two-month low.
• ADP Private Employment Report (Aug 30) – ADP reported that private-sector employment rose by 177k in August, down from the 371k increase in July and the smallest gain in five months. According to the median forecast, private-sector employment was expected to rise 195k in August.

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Consumer Activity and Confidence

• Vehicle Sales (Aug 1) – Total vehicle sales rose from 15.68m to 15.74m unit pace in July, less than the expected increase to 15.80m and a three-month high. Over the past 12 months, vehicle sales rose 18.2%, down from the 20.0% gain the month prior and the weakest annual growth rate in three months.
• Consumer Credit (Aug 7) – Consumer credit rose by $17.8b in June, surpassing the $13.0 forecast and following a $9.5b gain in May.
• Retail Sales (Aug 15) – Retail sales rose 0.7% in July, the largest monthly gain since January and following a 0.3% increase the month prior (revised higher from the 0.2% gain initially reported). According to the median estimate on Bloomberg, sales were expected to rise 0.4%. Year-over-year, retail sales rose 3.2% in July, up from the 1.6% annual rise in June. Car sales fell 0.3% in July following a 0.7% gain the month prior, while gasoline stations sales increased 0.4%. Excluding autos, retail sales rose 1.0% in July and climbed 2.2% over the past 12 months. Excluding autos and gasoline, retail sales rose 1.0% and increased 5.3% year-over-year. The retail sales control group (excludes food services, auto dealers, building materials and gas station sales), which goes into the GDP calculation, rose 1.0% in July and 5.0% over the past 12 months, the largest annual gain since February. In the details of the report, health and personal care sales rose 0.7%, food and beverage sales gained 0.8%, and clothing sales rose 1.0% in July. Also, building materials sales rose 0.7%, and general merchandise sales gained 0.8% due to a 0.9% increase in department store sales. Additionally, eating and drinking sales rose 1.4%, sporting goods sales increased 1.5%, and non-store retailer sales rose 1.9% in July. On the weaker side, miscellaneous sales decreased 0.3%, electronics sales declined 1.3%, and furniture sales dropped 1.8% in July.
• University of Michigan Consumer Sentiment (Aug 11) – The University of Michigan Consumer Sentiment Index declined from 71.6 to 71.2 in the preliminary August report, a two-month low. In the details of the report, a gauge of current conditions rose from 76.6 to 77.4, while a gauge of future expectations fell from 68.3 to 67.3 in the preliminary August print, a two-month low. (Aug 25) – The University of Michigan Consumer Sentiment Index was revised lower from 71.2 to 69.5 in the final August reading, a two-month low. In the details of the report, a gauge of current conditions was revised down from 77.4 to 75.7, and a gauge of future conditions was revised lower from 67.3 to 65.5 in the final August print, a two-month low.
• Consumer Confidence (Aug 29) – Consumer confidence, according to the Conference Board, fell from 114.0 (revised lower from 117.0) to 106.1 in August, a three-month low. In the details of the report, a gauge of current conditions declined from 153.0 to 144.8, the weakest level since November 2022, and a gauge of future expectations decreased from 88.3 to 80.2 in August, a two-month low.
• Consumer Spending and Income (Aug 31) – Personal income rose 0.2% in July, less than the 0.3% gain expected according to Bloomberg and following a 0.3% increase in June. Consumer spending, meanwhile, increased 0.8% in July, a tenth of a percentage point more than the 0.7% gain expected and following a 0.6% rise in June. Year-over-year, consumer spending increased 6.4% and personal income rose 4.7%. Adjusting for inflation, real consumer spending rose 0.6%, while real income fell 0.2% in July, the first monthly decline since June 2022. Over the past 12 months, real spending rose 3.0%, and real disposable personal income gained 1.3% following a 2.2% annual gain in June.

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Inflation

• CPI (Aug 10) – The Consumer Price Index (CPI) rose 0.2% in July, as expected and following a 0.2% gain in June. Year-over-year, consumer prices rose 3.2%, a slight uptick from the 3.0% pace reported the month prior. Food prices rose 0.2%, and energy prices gained 0.1% in July following a 0.6% gain in June. Excluding food and energy costs, the core CPI rose 0.2%, as expected and following a 0.2% increase the month prior. Year-over-year, the core CPI increased 4.7%, down from the 4.8% gain in June. In the details of the report, shelter prices increased 0.4%, due to a 0.5% rise in the OER, and other goods and services costs as well as recreation prices gained 0.1%. On the other hand, apparel prices as well as and education and communication prices were flat (0.0%), while commodities prices declined 0.1%, and medical care prices declined 0.2% in July. Also, transportation prices fell 0.1%, due to a 1.3% drop in used cars and trucks prices, and a 0.1% decline in new vehicle prices. Finally, airline fares dropped 8.1% in July following a similar decline the month prior.
• PPI (Aug 11) – The Producer Price Index (PPI) rose 0.3% in July, more than the 0.2% rise expected and following a flat reading the month prior (revised down from a 0.1% gain). Year-over-year, producer prices rose 0.8% in July, slightly more than the 0.7% gain expected and up from the 0.2% increase in June?(revised up from a 0.1% gain). Food prices rose 0.5% following a 0.2% decline the month prior, while energy prices were flat in July following a 0.7% gain in June. Excluding food and energy costs, the core PPI rose 0.3%, also slightly more than the 0.2% rise expected and following a 0.1% decline in June (revised down from a 0.1% gain). Year-over-year, the core PPI increased 2.4% in July following a similar gain in June. Additionally, services costs rose 0.5%, due to a 0.7% gain in trade costs and a 0.5% increase in transportation and warehousing costs.
• PCE (Aug 31) – The PCE rose 0.2% in July, as expected and following a similar increase in June. Year-over-year, headline inflation increased 3.3%, also as expected and up from the 3.0% annual gain in June. Excluding food and energy, the core PCE rose 0.2% in July, as expected. Year-over-year, core inflation increased 4.2%, up from a 4.1% annual increase last month.

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Manufacturing and Production Activity

• ISM Manufacturing (Aug 1) – The ISM Manufacturing Index ticked up from 46.0 to 46.4 in July, a two-month high, albeit the ninth consecutive month in contractionary territory (a reading below 50). According to the median forecast, the index was expected to rise to 46.9 in July. In the details of the report, production rose from 46.7 48.3, new orders increased 1.7 points to 47.3, imports ticked up two points from 49.3 to 49.6, and supplier deliveries rose from 45.7 to 46.1 in July. Additionally, prices paid rose from 41.8 to 42.6, a two-month high. On the other hand, exports dropped 1.1 points to 46.2, and employment fell from 48.1 to 44.4, the lowest reading since July 2020.
• ISM Services (Aug 3) – The ISM Services Index declined from 53.9 to 52.7 in July, a two-month low. According to the median estimate on Bloomberg, the index was expected to fall to 53.1. In the details of the report, backlog of orders jumped 8.2 points to 52.1, supplier deliveries ticked up from 47.6 to 48.1, and prices paid rose from 54.1 to 56.8, averaging a reading of 58.6 over the past six months. On the other hand, new orders declined from 55.5 to 55.0, and employment fell by 2.4 points to 50.7, a two-month low.
• Empire Manufacturing (Aug 15) – The Empire Manufacturing Index plunged from +1.1 to -19.0 in August, a three-month low. According to the median forecast, the index was expected to decline to -1.0. In the details of the report, prices paid rose from 16.7 to 25.2, a three-month high, and prices received increased from 3.9 to 12.6 in August, also a three-month high. Additionally, inventories rose from -10.8 to -9.7, and the six-month general business conditions index increased from 14.3 to 19.9, the highest reading since March 2022. On the other hand, the number of employees dropped from +4.7 to -1.4, and new orders declined from 3.3 to -19.9, a three-month low.
• Industrial Production (Aug 16) – Industrial production rose 1.0% in July, surpassing the 0.3% gain expected and following a 0.8% decline the month prior.
• Capacity Utilization (Aug 16) – Capacity utilization ticked up from 78.6% to 79.3% in July, a two-month high.
• Philly Fed Business Outlook Survey (Aug 17) – The Philly Fed Index rose from -13.5 to +12.0 in August, the highest reading since April 2022. According to the median forecast, the index was expected to rise to -10.4. In the details of the report, shipments rose from -12.5 to a reading of +5.7, delivery times gained from -12.9 to -7.0, and prices paid jumped from 9.5 to 20.8 in August, a five-month high. Additionally, new orders rose from -15.9 to +16.0. On the other hand, employment fell five points to -6.0, inventories decreased from -1.0 to -10.2, and the six-month outlook index dropped from 29.1 to 3.9 in August, a three-month low.
• Richmond Fed Manufacturing (Aug 22) – The Richmond Fed Manufacturing Index unexpectedly rose two points to a reading of -7 in August, a seven-month high, albeit the eighth consecutive month of a negative print. According to the median forecast, the index was expected to decline one point to -10 in August. In the details of the report, new order volume rose from -20 to a reading of -11, order backlogs ticked up two points to -26, and shipments rose by one point to -5 in August, a two-month high. On the other hand, capacity utilization declined from -7 to a reading of -11, and the number of employees plunged from +5? to -3 in August, a? five-month low.
• Kansas City Fed Manufacturing (Aug 24) – The Kansas City Fed Index unexpectedly improved from a reading of -11 to 0 in August. In the details of the report, shipments rose from -24 to +1, prices paid gained from 9 to 13, production jumped from -20 to +12, and the volume of new orders increased from -20 to -3. Additionally, the six-month outlook rose from -2 to +2 in August, a three-month high. On the other hand, employment fell three points to a reading of 1 in August.
• Durable Goods (Aug 24) – Durable goods orders fell 5.2% in July, more than reversing the 4.4% headline rise in June. Year over year, durable goods remains in the black albeit modestly, up 3.3%. The majority of the monthly weakness was concentrated in transportation, off 14.3% reflecting a 43.6% drop in civilian aircraft orders. Excluding transportation, orders rose 0.5%, and 1% over the past 12 months. In the details of the report, machinery order gained 1.1%, electrical equipment rose 1% and fabricated metals increased 0.7%. On the weaker side, computers and electronics orders dipped 0.1%.
• Capital Goods (Aug 24) – Capital goods orders .7% in July, but remain firmly in the black, up 4.2% on an annual basis. Capital goods orders excluding aircraft and defense, a proxy for business investment rose 0.1% and 0.6% year-over-year.
• Dallas Fed Index (Aug 28) – The Dallas Fed Manufacturing Activity Index rose from -20.0 to -17.2 in August, a five-month high, albeit the 16th consecutive month of a negative print.?According to the median forecast, the index was expected to rise to -19.0. In the details of the report, capacity utilization fell from -2.4 to a reading of -3.7, production fell from -4.8 to -11.2, and employment dropped from a reading of 10.0 to 4.3, a two-month low. Additionally, the six-month general business outlook index plunged from +4.6 to -3.3 in August, the lowest reading since June. On the other hand, new orders rose from -18.1 to -15.8 in August, averaging -15.1 over the past six months.
• Chicago PMI (Aug 31) – The Chicago PMI increased from 41.5 to a reading of 48.7 in August, surpassing the expected gain to 44.2 and a one-year high. In the details of the report, prices paid, new orders, and production rose, while supplier deliveries, employment, inventories and fell, signaling contraction.

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Housing Market Activity

• Construction Spending (Aug 1) – Construction spending rose 0.5% in June following a 1.1% gain the month prior. Over the past 12 months, construction spending rose 3.5%, the largest gain in four months.
• NAHB Housing Market Index (Aug 15) – The NAHB Housing Market Index unexpectedly dropped six points a reading of 50 in August, a three-month low. According to the median forecast, the index was expected to remain at a reading of 50 for the second consecutive month.
• Building Permits (Aug 16) – Building permits 1.442M, also a two-month high. Building permits were expected to rise 1.7% in June, according to Bloomberg. Single family permits rose 0.6%, while multi-family permits declined 1.0%. Year-over-year, building permits declined 13.0% in July following a 15.3% decrease in June, and marking the twelfth consecutive month of decline.
• Housing Starts (Aug 16) – Housing starts rose 3.9% in July, pulling the annual pace up from 1.398M to 1.452M, a two-month high. Starts were expected to rise 0.9%, according to the median forecast on Bloomberg. Single family starts increased 6.7%, while multi-family starts fell 1.7%. Year-over-year, housing starts rose 5.9% in July following a 10.4% drop in June.
• Existing Home Sales (Aug 22) – Existing home sales declined 2.2% from 4.16m to 4.07m in July, a six-month low. According to the median estimate on Bloomberg, existing sales were expected to fall 0.2%. Year-over-year, existing home sales declined 16.6% in July, the 24th consecutive month of decline, albeit up from the 18.9% drop in June. Due to a fall in sales, the months’ supply of existing homes rose from 3.1 to 3.3 months, averaging 3.1 months over the past three months. From a price standpoint, the median cost of a previously owned home rose 1.9% in July from a year earlier to $407k, albeit down slightly from the $410k median price reported in June.
• New Home Sales (Aug 23) – New home sales rose 4.4% from 684k to 714k in July, the highest since February 2022. According to the median estimate on Bloomberg, new home sales were expected to rise 0.9% at the start of Q3. Over the past 12 months, sales jumped 31.5% following a 21.5% gain the month prior. Due to a rise in sales, the months’ supply of new homes ticked down from 7.5 months to 7.3 months, a two-month low. From a price standpoint, the median cost of a newly constructed home rose 4.8% from the month prior to $437k. Year-over-year, new home prices decreased 8.7% in July following a 3.7% decline in June.
• S&P/CS 20 City & National Index (Aug 29) – The S&P Case-Shiller 20 City Home Price Index rose 0.92% in June, surpassing the 0.80% gain expected and following a 0.99% increase the month prior. The National Composite Index, meanwhile, increased 0.65% in June following a 0.82% gain in May. Over the past 12 months, the 20-city home price index dropped 1.22%, and the national composite index fell 0.06%, albeit an improvement from a 1.78% drop and 0.41% decline, respectively.
• Pending Home Sales (Aug 30) – Pending home sales unexpectedly rose 0.9% in July following a 0.4% increase in June. According to the median forecast, pending home sales were expected to drop 1.0% at the start of Q3. Over the past 12 months, however, pending home sales fell 13.8% following a 14.7% drop the month prior.

Trade and Currency

• U.S. Dollar (Aug 31) – The U.S. dollar gained ground in August, rising 1.7% against a basket of currencies to $103.62.
• Trade Balance (Aug 8) – The U.S. trade deficit narrowed by $2.8b to $65.5b in June, the smallest in three months. According to the median estimate on Bloomberg, the deficit was expected to narrow to $65.0b. Imports fell 1% to $312.98b, the lowest level since November 2021, while exports declined 0.1% to $247.48b in June.
• Import & Export Prices (Aug 15) – Import prices rose 0.4% in July, more than the 0.2% gain expected and following a 0.1% decline in June. Export prices, meanwhile, jumped 0.7% in July, surpassing the 0.2% increase expected and following a 0.7% drop the month prior. Over the past 12 months, import prices fell 4.4%, the sixth consecutive annual decline, and export prices dropped 7.9%, also the sixth consecutive annual decline.

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Monetary Policy, Reports, and Commentary

• Atlanta Fed GDPNow Forecast

o?? (Aug 24) – According to the initial Q3 Atlanta Fed GDPNow forecast, third-quarter growth stands to be even stronger than Q2. The estimate suggests a potential rise of 5.9% in Q3, up significantly from the 3.5% initial estimate. At 5.9%, this would mark the strongest pace of growth since Q4 2021.

• Fed Speak/News (Aug 1) – According to the Fed's Senior Loan Officer Opinion Survey (SLOOS), U.S. banks tightened lending standards across loan categories during Q2 and potentially plan to tighten standards further later in the year. At the start of the year, 45% of large and medium banks reported tighter standards and 44% of small banks. In the latest Q3 report, 51% of large and medium banks reported tighter standards and 49% of small banks reported tighter standards. In the details, demand weakened for C&I loans, as well as commercial real estate loans. Demand also slowed for residential real estate, home equity lines of credit, auto and other consumer loans. Finally, demand was reportedly unchanged for loans linked to credit cards. “Banks cited a less favorable or more uncertain economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons for expecting to tighten lending standards further over the remainder of 2023," according to the Fed's Senior Loan Officer Opinion Survey. (Aug 1) – According to former New York Fed President William Dudley, the likelihood of a soft landing is still modest at best. With a 3.6% unemployment rate, more than 100bps below the lower bound of the Fed’s full employment range, the Committee will likely continue to raise rates, eventually resulting in a more meaningful reduction in topline growth. “Although the recent economic news has been reassuring, the economy isn’t out of the woods. A hard landing might simply have been deferred, not avoided,” Dudley said in a Bloomberg Opinion piece. (Aug 9) – Credit card balances have topped $1 trillion for the first time ever, according to the New York Fed's Quarterly Report on Household Debt and Credit. According to the details of the report, the number of credit card accounts also increased by over 5 million in the past quarter to roughly 578 million with total credit limits increasing by $90 billion to $4.6 trillion. Rising prices, and waning stimulus and savings are prompting consumers to find alternative means to supplement still positive but slowing spending patterns. Credit card debt has been one such support, gaining 16.2% over the past year.?Of course, relying on credit cards is not a sustainable?solution,?particularly as rising interest rates make it more costly for consumers to do so. According to the Federal Reserve,?the average annual percentage rate is now over 20%, the highest on record.?? (Aug 25) – Federal Reserve Bank of Philadelphia President Patrick Harker set the tone for a near completion in the Fed’s rate hike cycle. Speaking to CNBC, Harker suggested the Federal Reserve is likely done with rate hikes this year, although the first rate cut could be delayed for some time as inflation continues to cool. "Right now I think that we've probably done enough" and it's probably a good idea to hold steady for the rest of this year and see how that affects the economy, Harker said during the interview. "We are in a restrictive stance, do we have to keep going even more and more restrictive?" "I'm in the camp of let the restrictive stance work for a while, let's just let this play out for a while, and that should bring inflation down."

·?????? July 25-26 FOMC Meeting Minutes (Aug 16)

·?????? According to the July Federal Reserve meeting minutes, even before the latest hotter-than-expected July inflation reports, the Committee judged a "significant" inflation risk.?As such, most participants agreed further tighter monetary policy may be warranted.?"Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the July 26 FOMC minutes stated. Additionally, while the U.S. economy continues to prove resilient with growth accelerating in the second quarter, Committee members remain cautious regarding future growth and labor market conditions.?"Some participants commented that even though economic activity had been resilient and the labor market had remained strong, there continued to be downside risks to economic activity and upside risks to the unemployment rate; these included the possibility that the macroeconomic effects of the tightening in financial conditions since the beginning of last year could prove more substantial than anticipated," noted the minutes.?For others, meanwhile, confidence in the state of the economy was offset by the risk of the Fed being too aggressive and potentially – unnecessarily – choking off growth.?"A number of participants judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee's goals had become more two sided, and it was important that the Committee's decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening." While the July rate decision was presented as a unanimous decision, it is clear there is a growing divide among policy officials regarding the nearness of a sufficiently restrictive terminal level of rates.?Some officials have indicated the Fed may be close or even at an end to its higher rate campaign.?Others are less convinced given the still elevated level of inflation.?The Fed remains data dependent and thus with the latest uptick in price pressures and potentially further energy and other commodity price pressures emerging in the coming month(s), the conversation among Fed officials is likely to become increasingly fruitful.?

·?????? Jackson Hole Annual Economic Symposium (Aug 25)

·?????? All eyes were on Chairman Powell as he took the stage at the Annual Policy Symposium held in Jackson Hole, WY. As expected, his comments were relatively hawkish in nature as the Committee continues to grapple with higher-than-expected inflation amid a stronger-than-expected economy. The Chairman noted concerns that the economy has in fact not slowed enough, and “persistent signs of above trend growth could warrant further policy tightening.” He added that tighter credit standards are working with monetary policy initiatives to slow the economy, but the consumer remains unexpectedly robust and the labor market, while cooling, remains tight. Rebalancing in the labor market, Powell said, continues but “more progress” is needed. Additionally, he noted that after taking a substantial hit and showing clear signs of slowing, housing has “picked back up.” Inflation, meanwhile, remains “too high.” While the decline has been encouraging, Powell cautioned that even after two months of “good data,” the “process still has a long way to go.” There is “substantial further ground,” to cover Powell emphasized, before reaching the Fed’s intended goal of price stability. “We can’t know the extent to which lower readings (on inflation) will continue.” As such, more restrictive monetary policy is needed to achieve the Committee’s goal of price stability. It is the “Fed’s job to bring down inflation” and “we will do so.” Powell was clear that the Fed maintains a 2% inflation target, eradicating any notion that 3% was the new 2%. “Two-percent is and will remain our policy target,” Powell said, reiterating that price stability is needed for the economy to work for everyone. “We will keep at it until the job is done.” Of course, there remains uncertainty as to the effect and timing of earlier policy initiatives. As such, the Committee will “proceed carefully,” implying the Fed is both willing to tighten policy further as needed, as well as wait to assess incoming data. Even after the Fed deems policy has reached a sufficiently restrictive level, the Committee intends to hold policy at a terminal level until it is “confident inflation is moving down.” Given the multi-faceted nature of inflation stemming from both supply and demand factors, as well as international and corporate policy, the pathway to price stability is increasingly complicated. The Fed will carefully weigh the risk of tightening too much and slowing the economy arguably more than needed, and doing too little and potentially allowing inflation to become entrenched.

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Domestic News and Activity?

• Politics and the Biden Administration

• (Aug 2) – After months of negotiations, officials in Washington reached a deal to avoid a government shutdown back in June.?However, the ramifications of the showdown are still filtering through the economy and are having an impact on sentiment. With fears of another potential government shutdown looming in October, Fitch Ratings opted to downgrade the United States’ long-term rating from AAA to AA+.?Of course, this isn’t the first time a government standoff has led to a downgrade. Back in 2011, after a standoff over the government's budget deficit and rising debt burden, S&P Global cut its rating for the U.S. from AAA to AA+.?According to the report, “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management. In addition, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process [and] the GG (General Government) debt-to-GDP ratio is projected to rise over the forecast period, reaching 118.4% by 2025. These factors, along with several economic shocks as well as tax cuts and new spending initiatives, have contributed to successive debt increases over the last decade."?
• (Aug 22) – Just five months after the collapse of Silicon Valley Bank and others, Moody’s cut credit ratings on multiple small and mid-sized banks and placed six larger lenders on review for downgrade. According to the report,?“Many banks' Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital.”?The report also noted concerns over the level of commercial real estate exposure of small and mid-size banks, and noted that a mild recession in early 2024 was its base-case scenario for the broader economy.?S&P followed suit, downgrading five regional banks. According to the report, like Moody’s, S&P noted concerns over prolonged elevated interest rates as well as asset quality risks, especially for those institutions with a high exposure to commercial real estate. Despite near-term concerns, however, at least some outlooks were revised to stable in the analysis, reportedly reflecting “improved stability and relatively good funding metrics.”? With trillions in commercial loans coming due in the next 1-3 years, many will be resetting in a significantly higher interest rate environment, eroding not just affordability but valuations as well. With loan-to-value ratios (LTVs) rising, this will require a significant amount of additional capital or equity. For some, however, particularly those in many of the traditional downtown urban environments, a lack of population return with the new hybrid work model well established, may make the decision for future investment more difficult.
• (Aug 28) – From airlines to Starbucks to UPS, the latest union to join the fight for higher wages is the United Auto Workers union. According to reports, a strike could occur if a new contract is not agreed upon by September 14. Furthermore, according to industry analysis, a work stoppage by its 150,000 workers could result in an economic loss of more than $5B in just 10 days, not to mention add further disruptions to supply chains, inventories and price pressures.
• (Aug 28) – In an effort to repair a working relationship with China amid growing restrictions on technology and advanced semiconductors, U.S. Commerce Secretary Gina Raimondo headed to Beijing on Sunday for a four-day visit. This marks the third cabinet secretary to visit China this year after Secretary of State Antony Blinken traveled in June and Treasury Secretary Janet Yellen visited in July. “Of course, in matters of national security, there is no room to compromise or negotiate," Raimondo said. "And as you say, the vast majority of our trade and investment relationship does not involve national security concerns." Despite rising animosity, China remains a key trading partner with the U.S., as the number three purchaser of U.S. goods, totaling $150.4B in 2022 after Canada ($365.5B) and Mexico ($324.3B). Meanwhile, the U.S. is equally reliant on Chinese imports, acquiring $536.3B in 2022.

International News and Activity?

·?????? U.K.

o?? (Aug 3) – The Bank of England (BOE) raised rates by 25bps from 5.00% to 5.25%, marking a 15-year high. In the statement, officials warned that the fight against inflation may require a further tightening in borrowing conditions “for a prolonged period.”

o?? (Aug 17) – U.K. inflation slowed from 7.9% to 6.8% in July. Although the core measure, the key focus for policymakers, remained stubbornly elevated at 6.9% in the latest report, unchanged from June and above the forecast of 6.8%. Given the relative improvement, but still nominal high level of prices, the Bank of England, like the Fed, will continue to face mounting pressure to keep raising rates in an effort to tame inflation.

·?????? China

o?? (Aug 8) – According to the July report, Chinese exports dropped 14.5% over the past 12 months, the weakest pace since February 2020, while imports contracted 12.4%. Along with deteriorating trade conditions, a housing market bubble, rising levels of unemployment among the younger population, indications of deflation and lackluster topline growth have undermined expectations the Chinese economy will be able to bounce back in the near term, let alone come “roaring” back as some investors had anticipated.?As a result of ongoing sluggishness, unlike most developed central bank policy, the People’s Bank of China (PBOC) has taken action to spur demand and stimulate investment. In June, PBOC dropped interest rates, lowering the one-year loan prime rate by 10bps from 3.65% to 3.55%, and trimming the five-year rate by 10bps from 4.30% to 4.20%.

o?? (Aug 15) – According to National Bureau of Statistics (NBS), Chinese industrial output?grew 3.7% in July from the year prior, slowing from the 4.4% annual gain in June and below the median forecast of 4.4%. Also, Chinese retail sales rose 2.5% in July from a year ago, down from the 3.1% annual gain in June and the weakest pace since December 2022. Additionally, youth unemployment, which wasn’t reported in July, rose to 21.3% in the June report, a record high.?According to Treasury Secretary Janet Yellen, the mounting weakness in China is a “risk factor” for the US.?“China’s slowdown will have the largest impact on its Asian neighbors, but there will be some spillovers to the United States,” Yellen told reporters following a speech in Las Vegas.?

·?????? Russia

o?? (Aug 17) – The Russian economy continues to face hardship amid sanctions from the Western world as the conflict with Ukraine now pushes into its 18th month. As a result, the Russian ruble came under pressure, trading at 93.46 relative to the U.S. dollar after breaching 100. Since the conflict began, the Russian ruble has lost around 20% of its value against the dollar.

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-Lindsey Piegza, Ph.D., Chief Economist

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