This chart shows US margin loan balances since 1999. Notice how spikes in margin debt often precede market downturns. That makes the present spike more than a little concerning. Margin balances are up about 50% since last February, when the markets began reacting to the pandemic. If history holds, margin balances will fall along with stock prices. When it will happen is a different question.

 

 

Inflation

 

 

Business inflation expectations are at a decade high.

 

 

Manufacturer’s’ rising costs continue to signal higher consumer inflation ahead.

 

 

  • Supply chain disruptions have been boosting input prices. In addition to chip shortages
  • and bottlenecks at California ports
  • the Texas deep freeze created a shortage of plastics.
  • And freight rates are climbing.
  • The key question is whether the CPI increase will be sustained. Here is a forecast from Capital Economics.
  • The rise in gasoline prices will add close to 2 percentage points to headline CPI by April, according to Capital Economics (base effects). But the sharp rise will be short-lived.
  • The fastest 20% of CPI components have risen for several years, while the slower 20% have remained centered on zero. Here is a comment from Jim Vogel, FHN Financial.
  • Bottom Line: The time to start considering a real shift to sustained inflation is when the lowest 20th percentile of prices – with those prices weighted evenly – begins to rise along with the upper 20th percentile.

 

US Economy

 

  • Airline traffic:

 

 

Restaurant activity as well as spending on salons and spas:

 

 

 

  • Small business sales have accelerated sharply
  • Evercore ISI business survey:

 

 

  • Hotel occupancy:

 

 

  • Here is a US GDP forecast from Oxford Economics.

 

 

  • Mortgage rates are grinding higher

 

 

  • Existing home sales declined last month due to the deep freeze in parts of the country as well as collapsing housing inventories.
  • The inventory of homes for sale is down nearly 30% from February of 2020.
  • The median price of homes sold is up almost 16% from a year ago.
  • Job postings on Indeed keep climbing.
  • US demand for skilled blue-collar workers is surging. No skills? No problem – get an apprenticeship.
  • The IEA expects oil demand to slow over the next few years.
  • The Richmond Fed’s manufacturing index continues to show strength in the region’s factory activity.
  • Manufacturers anticipate boosting wages amid worker shortages.
  • Raw materials inventories are shrinking and so are inventories of finished products.
  • Unlike other survey-based indicators, the World Economics SMI points to lackluster growth in US business activity.

 

 

  • The labor market recovery is picking up momentum.
  • Consumer sentiment is strengthening.
  • Credit/debit card data point to an acceleration in consumer spending.
  • Air travel is improving.
  • Consumers are more comfortable with various social activities, according to an Evercore ISI survey.
  • Durable goods orders declined in February for the first time in ten months. Cold weather was the culprit once again. To be sure, growth in durable goods orders remains intact, and we should see a rebound this month.
  • According to Markit PMI, business activity has been robust this month.
  • As a result, businesses are paying more to their suppliers and charging higher prices.
  • Mortgage rates are grinding higher.
  • The number of refi candidates (borrowers who would benefit from refinancing their loans at current rates) has declined.
  • Mortgage originations are dominated by borrowers with the highest credit scores.
  • On average, there are now four offers received for each residential property sold in the US.
  • The US needs an additional 2.7 million homes to meet near-term demand.
  • The Kansas City Fed’s regional manufacturing report points to rapid growth in factory activity.
  • Automobile inventories are near multi-year lows.
  • The New York Fed’s national economic activity index (WEI) shows acceleration in growth.
  • Initial jobless applications dropped to a post-pandemic low.

So, the US Economy appears to be in recovery mode, right?  And then we get this “Recession Signal”:

We last looked at the Chicago Fed’s National Activity Index in October. At that point it had given up most of its summer recovery and showed the economy back at trend-level growth. The numbers have not improved and in February took a turn for the worse. In this index, 0 means the economy is growing at its historical average pace. Readings below -0.70 indicate growing recession odds… and it just dropped from +0.75 in January to -1.09 in February.

 

 

Worse, all four of the indicator categories (Sales, Employment, Production, and Consumption) fell in February. The CFNAI last saw this level in 2009. Now, this doesn’t guarantee the present recession will continue. Unusual things are happening, like the midwest freeze. Maybe continued vaccinations will unleash growth and send the index higher again soon. Or maybe not. But CFNAI is historically quite reliable, so it’s best not to ignore it.

 

Thought of the Week

 

“The two most important days of your life are the day you were born and the day you find out why.”
― Mark Twain

 

Picture of the Week

 

Thanks Don

 

 

All content is the opinion of Brian J. Decker