• Retail sales declined last month, but the drop was less severe than expected (boosted by online sales).
  • Housing-related sales are down on a year-over-year basis …

 

 

  • … and there is more pain ahead for the sector.

 

 

  • Spending at restaurants and bars has been outpacing grocery purchases.
  • Manufacturing output declined more than expected.
  • The U. Michigan consumer sentiment index edged higher this month.
  • The import price index declined sharply in March, which should ease goods inflation.
  • The GDPNow Q1 growth estimate from the Atlanta Fed is back above 2%.
  • Fed officials are preparing the market for another rate hike next month.

 

Source: Reuters   Read full article

 

  • The probability of a rate hike in May is now above 80%.
  • The NY Fed’s Empire Manufacturing Index, the first regional factory report of the month, was remarkably strong.

 

 

  • The index of new orders soared.

 

 

  • The Empire index points to a rebound in factory activity at the national level.
  • However, the outlook for new orders remains subdued.

 

 

  • US residential construction shows signs of resilience, with housing starts and building permits holding up well in March.
  • But mortgage applications point to downside risks.

 

 

  • So far, leading indicators and manufacturing data signal recession, while consumption and labor remain resilient.
  • But there are enough red flags to suggest that a recession is likely in the months ahead.

 

 

  • Mortgage applications hit a multi-year low last week.

 

 

  • Mortgage rates have been moving higher.

 

 

  • The number of new home listings keeps falling.

 

 

  • The median sale price continues to decline, partially due to a higher proportion of lower-priced homes being sold.
  • The Conference Board’s index of leading economic indicators looks increasingly recessionary.

 

 

  • The leading index has never declined this much in six months without a recession, …

 

 

  • In contrast to the report from the NY Fed, the Philly Fed’s manufacturing index tumbled further this month.

 

 

  • New orders continue to decline.

 

The Fed

 

Atlanta Fed President Raphael Bostic said on CNBC he envisions the central bank hiking its benchmark fed-funds rate one more time before pausing “to then take a step back and see how our policy is flowing through the economy.”

Now, bear in mind that Bostic isn’t among the Fed’s 12 voting members this year. But he’s a longtime leading voice at the institution.

In Bostic’s preferred scenario, the fed-funds rate would settle in a 5% to 5.25% range after the Fed’s early May meeting. (This rate is actually a suggested range for banks to follow rather than a mandate of a single number, so that’s why we say range.)

Bostic doesn’t expect inflation to get to the Fed’s 2% goal this year, likely staying in the 3% range at best. So to him, keeping interest rates around 5% would be the appropriate course for the rest of the year to keep slowing the pace of inflation.

If the [inflation] data come in as I expect, we will be able to hold there for quite some time. Once we get to that point, I don’t really have us doing anything but monitoring the economy for the rest of the year and into 2024.

That couldn’t be a clearer statement. Say what you want about the Fed, but its members do say what they think in a straightforward way, even if you might not agree with it. And they love to talk. Listen close enough and it’s fairly easy to read between the lines.

All the dominoes from the banking crisis haven’t likely fallen yet. Small banks, for example, have seen record outflows of deposits over the past four weeks – and consequences are bound to follow.

In the Fed’s latest meeting in late March, Chairman Jerome Powell said the banking crisis will likely lead to tighter credit conditions. That’s bad news for our economy. As we explained last month, credit is already tighter than at any time since the last financial crisis.

Meanwhile, the labor market is still strong and inflation still high.

 

Market Data

 

  • Traders jumped into shares of large banks on Friday while dumping regional/small banks.

 

 

  • Despite big swings over the past two years, the S&P 500’s performance during the period is almost flat.

 

 

  • How much do dividends decline during recessions?

 

 

Quote of the Week

 

“The top 1% of taxpayers accounted for more income taxes paid than the bottom 90% combined,” says the Tax Foundation. And it’s not close. “The top 1% of taxpayers paid $723 billion in income taxes while the bottom 90% paid $450 billion.” For the top 1%, that’s 42% of the taxes on 22% of the income. The bottom 50% paid about $39 billion, or about 2.3% in taxes on 10.2% of the income.

 

Picture of the Week

 

Machu Picchu, Peru

 

 

All content is the opinion of Brian Decker