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National Economic Notes
Monday Report May 23rd, 2022
Business Confidence: -4.5
Global businesses remain highly anxious because of the economic fallout from the Russian invasion of Ukraine, the relentless COVID-19 pandemic and, most recently, rising interest rates. Businesses’ assessment of present business conditions and expectations regarding the economy’s performance through this summer are notably weak, with nearly two-thirds of respondents saying that present business conditions are getting worse and that they will be worse still later this year. Sentiment is not yet consistent with a global economy in recession, but it is close. Europe and North America are the most vulnerable to a near-term downturn, while Asia and Latin America are less so.
Treasury International Capital Flows: $23.1 bil
Mar.: $23.1 bil Net long-term capital flows were positive for the 10th straight month in February, with net inflows totaling $141.7 billion. Foreign residents were net buyers of $91.5 billion worth of long-term U.S. securities after recording net purchases of $53.9 billion in January. Private foreign investors' inflows totaled $87.1 billion while official foreign investors increased their holdings by $4.4 billion. U.S. residents contributed to capital inflows, with sales of long-term foreign securities adding $50.2 billion of capital inflows.
Moody’s Analytics & CNN Business Back-to-Normal Index: 93.7
The Moody’s Analytics & CNN Business Back-to-Normal Index inched forward this week, rising from a revised 93.6 to 93.7. Improvements have been hard to come by of late, though our expectation remains a positive one. The two biggest drags on the U.S. index recently, our business confidence measure and mortgage activity, improved this week. The remaining components were flat from the week before. Just three states—Idaho, Montana and South Dakota—currently have readings at or above 100.
St. Louis Fed Financial Stress Index: -0.81
Financial market stress surged last week, with the St. Louis Fed Financial Stress Index increasing 45 basis points to -0.81, its largest increase since April 2020. The four-week moving average increased 11 basis points to -1.14. Equity markets continued to see red while long-term Treasury yields tumbled, with the 10-year Treasury declining to 2.93% by week’s end.
Import and Export Prices: 0.0% m/m
A drop in energy prices and past appreciation in the U.S. dollar contributed to the weakness in U.S. import prices in April. Import prices were unchanged in April following an upwardly revised 2.9% gain in March (previously 2.6%). April came in weaker than either we or the consensus anticipated, but, if sustained, it would add to the evidence that the worst of our inflation problems are behind us. Imported petroleum prices were down 2.9% in April after rising 19.4% in March. Imported food and beverage prices were up 0.9% in April, an acceleration from the 0.4% in March. Nonfuel import prices, which matter for consumer prices, increased 0.4%, noticeably weaker than the 1.2% gain in March and 0.9% rise in February.
Moody's Analytics Inflation Expectations Pulse: 2.44%
The Moody’s Analytics Inflation Expectations Pulse popped higher in the week ended May 15. The benchmark 10-year IEP rose 20 basis points to 2.61% last week and reached the highest point in the series’ 15-year history. Inflation expectations jolted higher in the Survey of Professional Forecasters as economists updated their inflation projections following the Russian invasion of Ukraine.
Bankruptcy Filings: -15.9% y/y
Consumers broadly are not under severe financial stress, as personal bankruptcy filings remained low in the first three months of 2022. Abundant cash and jobs continued to support household finances even as inflation accelerated. The year-over-year decline moderated, as filings atypically fell in the comparable quarter of 2021. U.S. courts reported that nonbusiness filings came in 15.9% below their year-ago level after falling 17.7% the prior quarter. On a quarter-to-quarter basis, filings rose 0.7%. Business filings inched lower in the quarter, falling 3% from the fourth quarter, hitting another post-2006 low. They were down 27.6% from a year earlier. This compares with a 36.3% drop on a year-ago basis in the prior quarter.
University of Michigan Consumer Sentiment Survey: 59.1
U.S. consumer confidence gave back all its unexpected early-April rebound in May as high gasoline prices, inflation staying in the headlines, and the erratically falling stock market continued to hammer attitudes. The preliminary report from the University of Michigan had sentiment slumping to 59.1, the lowest since 2011, from 65.2 in April. The weakness was about evenly distributed between expectations and assessments of current conditions. The expectations component dropped 5.8 points from April while the present conditions index fell 6.2 points. Inflation expectations remained steady but high. Median 12-month inflation expectations held at 5.4% and five-year expectations held steady at 3%.
Industrial Production: 1.1% m/m
U.S. industrial production increased 1.1% in April following an unrevised 0.9% gain in March. April’s increase was a touch stronger than our forecast for a 0.9% increase. Manufacturing output was up 0.8%, boosted by a solid increase in motor vehicle and parts. Excluding motor vehicle and parts, manufacturing production rose 0.5%, a little better than the 0.4% gain in March. Utilities output increased 2.4%, more than reversing the 0.3% decline previously. Mining, supported by higher energy prices, rose 1.6%. This is the second consecutive monthly gain in excess of 1%.
Business Inventories (MTIS): 2.0% m/m
Business inventories increased by 2% from February to March. The build was slightly above the consensus forecast. Among the categories, manufacturing inventories grew 1.3%, retail inventories rose 2.3%, and wholesale inventories climbed 2.3%. The total business inventory-to-sales ratio came in at 1.27, slightly above February’s I/S ratio. For reference, the I/S ratio was 1.26 in March 2021. February’s total inventory build was also revised up, from 1.5% to 1.8%.
Jobless Claims: +21,000
U.S. initial claims for unemployment insurance increased by 21,000 to 218,000 in the week ended May 14. For the previous week new filings were revised down by 6,000 to 197,000. The four-week moving average in initial claims increased by 8,250 to 199,500. Layoffs are still low, as businesses are reluctant to cut workers because of the difficulty in filling open positions. Continuing claims for unemployment insurance benefits declined from 1.342 million to 1.317 million in the week ended May 7 while the insured unemployment rate declined by 0.1 percentage point to 0.9%.
MBA Mortgage Applications Survey: -11%
Mortgage application volume contracted sharply in the week ended May 13, falling 11% from the previous week. The purchase index also fell sharply, dropping 11.9% from the week before. The refinance index contracted 9.5%. Rising borrowing rates continue to weigh heavily on refinancing applications, which are 72.4% below year-ago levels. Contract rates for fixed-rate, 30-year mortgages inched down 4 basis points this week, from 5.53% to 5.49%.
NAHB Housing Market Index: -8
Homebuilder confidence dropped 8 points to 69 in May. Lower demand due to higher mortgage rates and poor affordability pushed down homebuilder sentiment. All subcomponents fell this month. Also, on a three-month moving average, all four regional scores remained unchanged or declined in May.
New Residential Construction (C20): -0.004 mil, SAAR
The noticeable increase in mortgage rates is cutting into U.S. residential investment. Housing starts dropped from a revised 1.728 million annualized units in March (previously 1.793 million) to 1.724 million in April. Starts in April were weaker than consensus expectations but in line with our forecast. Over the past six months, housing starts have averaged 1.728 million annualized units. The drop in starts was isolated to single-family, as multifamily increased 15.3%. Leading indicators weakened, as permits fell 3.2% in April to 1.819 million annualized units
Existing-Home Sales: -2.4%
Existing-home sales dipped 2.4% in April to 5.61 million units annualized, reinforcing the downward trend that began at the start of 2022 and dropping to their lowest level since June 2020. Reductions in housing affordability driven by the upward spikes in mortgage rates and house prices continue to weigh on sales. Single-family sales declined 2.5% on a month-over-month basis and condo/co-op sales decreased 1.6% compared with the previous month. Existing-home sales decreased in the South and West even as they rose in the Midwest and Northeast.
Retail Sales : 0.9%, m/m
Retail sales continued to grow at a healthy pace in April, although again the growth was concentrated, with auto dealers among the leaders. Total sales were up 0.9% after rising a massively revised 1.4% (0.7% previously) in March. Excluding auto dealers, sales were up a more modest 0.6% after rising 2.1% previously. Among rapidly rising segments were auto dealers, nonstore retailers, restaurants, and miscellaneous store retailers. A large decline was reported at gasoline stations with smaller drops at sporting goods and hobby stores, grocery stores, and building supply stores. Year-over-year growth is still of limited value, but it improved from a revised 7.3% to 8.2%.
Internet Sales (E-Commerce Sales): +$2.4b
On a seasonally adjusted basis, internet sales in the first quarter increased 2.4% from the fourth quarter of last year. This first-quarter estimate is 6.6% higher than in the same quarter of 2021. U.S. e-commerce retail recorded $250 billion worth of sales in the first quarter. The trend was similar but more robust for total retail sales, which increased 10.9% in the same period. The e-commerce share of total retail sales grew from the previous quarter to 14.3%, which is still above pre-pandemic levels but a few percentage points below the peak reached during the height of stay-at-home orders and social distancing.
Cox Automotive/Moody’s Analytics Vehicle Affordability Index: 40.6 weeks, NSA
The Cox Automotive/Moody’s Analytics Vehicle Affordability Index increased to a record high in April. The number of weeks of median U.S. household income needed to purchase an average-priced vehicle reached 40.6. The slight increase in weeks of income needed to purchase a new vehicle was driven by both an increase in new-vehicle transaction price and a rising cost of borrowing due to higher interest rates compared with March. This combination more than offset the increase in median U.S. household income, driving down affordability for the second consecutive month.
Oil Inventories: -3.4 mil barrels
A larger-than-expected draw in oil inventories should put some downward pressure on oil prices but is unlikely to reduce prices significantly in the face of the Russian invasion of Ukraine. Commercial crude oil inventories fell by 3.4 million barrels in the week ended May 13, beating consensus predictions of a 1.4 million-barrel draw. Gasoline inventories fell by 4.8 million barrels, more than analyst predictions of a decline of 1.3 million barrels. Distillate inventories rose by 1.2 million barrels. Refinery capacity utilization rose to 91.8% from 90% in the previous week. Over the last four weeks, total U.S. oil demand was 1.7% higher than in the same period last year.
Natural Gas Storage Report: +89 bil cubic feet
Last week’s build in gas stocks perfectly matched consensus expectations, so this report will not help sway extremely high natural gas prices. Working gas in underground storage rose by 89 billion cubic feet during the week ended May 13.
Source: Economy.com, Bonneville Research, 2022
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