As has been widely reported, inflation is at 40-year highs. The Fed, as many analysts have noted, has been slow to act and is almost in a panic to raise rates to fight inflationary problems within the economy. Check out an updated modified chart below showing this record rate of the speed of US interest rate hikes and learn more here.
Such sharp increases in interest rates in such a short period of time are bound to create problems for the wider economy. We take a look at the state of the economy as we head into the final month of 2022.
The consumer is out of the game. Credit card debt has soared as consumer savings evaporate. See it in the chart below and learn more here.
Consumer defaults, so far, are not a problem. When you look at delinquencies on credit cards, auto loans, and foreclosures, while they are up slightly, they are still not a problem. See it in the charts below and learn more here.
The housing market is in total collapse due to mortgage rates close to 7%. According to the National Association of Home Builders last week, home builders reported that traffic from prospective buyers of new single-family homes fell sharply. Sales of new single-family homes have been zigzagging through low levels for months. According to John Burns Real Estate Consulting’s survey of homebuilders, the cancellation rate increased to 25.6% in October: more than a quarter of signed contracts are canceled. See it all in the charts below and learn more here.
The economic outlook continues to decline. The leading Purchasing Managers’ Index (PMI) indicator shows weak demand weighing on private sector business activity in recently released November data. The S&P Global Flash US Composite PMI™ shows escalating weakness in private sector demand. Although GDP growth recovered in the last quarter, the trend line continues to decline despite calling it a technical recession. See this in the chart below.
Inflation remains high but is stagnating (CPI rate of 7.7%) as the labor market remains stable (unemployment rate of 3.7%)., although some layoffs are starting to appear. Check out recent tech layoffs in the chart below and learn more here.
That was quite the data dump on where we are in terms of the economy at the end of 2022. What are some of the takeaways from this data dump?
For the average American, at the moment, the economy is not as bad as it is made out to be. The biggest problem for most Americans is inflation and the cost of living: they are getting poorer. The Fed’s sharp interest rate hikes are just now starting to kick in and affect the economy. One wonders if the intensity of the rate hikes will also be seen in the harshness of the economic downturn. It is the economic outlook and leading indicators that are the most worrying, which are on the downside and could accelerate. The causes of an economic recession are not just Fed rate hikes, but supply chain issues, government energy policies, and geopolitics should also be considered.
So if you don’t like the economy now, the recession is just getting started and there’s still a long way to go. The only thing that can save it will be the “Fed pivot”, to ease interest rates and/or government stimulus, which would risk reviving inflation. When “Fed pivots” will be the operative words.
Is the economy heading off a cliff?
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Syndication source for the original RWR article.
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