I thought about making this blog subscription based, but I didn't want to get thrown in with all the discussion about price gouging. Besides the value provided by this blog is no doubt priceless.
All was right with the economy on Thursday. No barking from the dog, no smog and mama cooked a breakfast with no hog.
Retail sales data was better than expected, coming in at +1.0% MoM vs. estimates of just 0.4%, the core component was also strong. Some of it was potentially a makeup for car sales that were slowed the prior month by a cyberattack on dealers, but nonetheless the report seemed to show the U.S. consumer is hanging in there. Earlier in the week data showed that everyone who had really high mortgage rates refinanced their rate to a moderately high mortgage rate of 6.5%, taking advantage of a 60bp drop in mortgage rates over the last year. That should mean some additional cash for consumers. Imagine if rates fall another 100bps, maybe I should stop writing this blog and become a mortgage broker to catch that refi wave.
Over in job land, jobless claims show you really still can't get fired. Yes there was other data like Philly Fed and Empire Mfg, but those indexes are notoriously volatile. Import prices did rise slightly, which seemed to be ignored, even though I'm pretty sure we import like everything. Industrial production data was weak, but ignored because the Hurricane and because do we really produce anything (we actually do)?
Across the pond UK GDP was stronger than expected, good for them. It's only going to get better with Taylor Swift performing over there.
You put it altogether and the market seemed to discount the recession narrative for today. The major equity indexes did very well and bonds sold off sending yields higher by double digit basis points. As quickly as the nonfarm payrolls, Yen Carry, episode came, it seems to have gone. And nobody (whoever that is) was talking about Russia and Ukraine, the Middle East or MonkeyPox.
As a reminder, economic data generally falls into leading, coincident and lagging. Sometimes the narrative hinges on a lagging indicator like a CPI or Payrolls print, somtimes like Thursday it is the leading indicators that win the day. Speaking of leading indicators or their more evolved "nowcasting", the ATL Fed lowered their 3Q 2024 real GDP estimate to 2.4% citing revised private investment growth based on recent data.
Somewhere in the shuffle there is some analyst google searching "business cycle" and "business cycle theory" finding some article by Ed Prescott in the 1980's, feeling confused, and generally just trying to figure out how to make sense of the recent economic data. In search of a way to categorize the current state of the economy for some presentation they owe their boss. Are we still in expansion, slowdown, contraction? You can probably find something to support each of these views, at least for various segments of the economy.
Wait, I take that back, that analyst is now no longer working 100 hours a week pondering macroeconomic questions for a slide deck, their boss watched the first 2 seasons of Industry on HBO and realized the error in their ways.
On the day ahead we get UofM asking consumers about gas prices and politics (not really, but they do seem to really drive this survey). The 2Y is around 4.10% and the 10Y is 3.92%.
XTOD: https://pbs.twimg.com/media/GVCujATaEAQtynv?format=jpg&name=large
XTOD: “I’m not convinced the Fed should cut in September… to me, consumer spending looks strong and that’s not a surprise because income growth is still strong… we’re talking about [GDP growth] forecasts that are above 2.5%.”
XTOD: Bank of America is finally cracking down on its overworking culture after the death of 35-year-old BoA investment banker Leo Lukenas III
Earlier this week, the Wall Street Journal revealed that BoA managers frequently required junior bankers to work late into the night, with few safeguards in place to prevent such demands
In May, Lukenas had reportedly considered leaving his job after being pushed to work several 100-hour weeks, according to Douglas Walters, a MP at GrayFox Recruitment
After his death, widespread call for reevaluations of companies across Wall Street erupted
After his death, widespread call for reevaluations of companies across Wall Street erupted
BoA is effectively now encouraging junior investment bankers to report to upper management or HR if they feel pressured by their managers to overwork or falsify their hours - we will see how this plays out
XTOD: Eric Schmidt says in the next year, AI models will unite three key pillars: very large context windows, agents and text-to-action, and no-one understands what the impact will be but it will involve everyone having a fleet of AI agents at their command
XTOD: Read more history and fewer forecasts.
https://x.com/morganhousel/status/1824149769314586652
https://x.com/AEIecon/status/1824144433102876855
https://x.com/exec_sum/status/1824104515718746211
https://x.com/tsarnick/status/1823500546260787607
https://x.com/morganhousel/status/1824115005949964437
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