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DING! — Is anyone
DAZED AND CONFUSED — Inflation is up, but so are wages and hiring. Sentiment is way down, but spending is chugging along. Financial conditions are tight; the labor market is tighter.
It’s confusing! We wrote yesterday about how the pinballing between scary inflation numbers and robust jobs data is driving a back-and-forth over whether the U.S. economy is teetering or still pretty healthy.
MM asked a few economists what they see as the most important leading indicators (apart from hiring and inflation) of whether the U.S. is near or in a recession. You’ll want to bookmark these for the months ahead.
Diane Swonk, chief economist at Grant Thornton:
“The most interest-rate-sensitive sector out there is housing and that’s the one to keep an eye on, because that is the first one into a recession in what would be a typical Fed tightening cycle, which we haven’t had in a long time.”
Swonk said she watches new home sales and builder cancellation rates. “The latter is the highest since the onset of [the] pandemic but not in a recession yet.”
Matthew Luzzetti, chief U.S. economist at Deutsche Bank:
“Continuing jobless claims are the best real-time indicator of recession. … There’s been some rise in initial jobless claims, which suggests that there has been some pickup in layoffs, but it appears as though at the moment the people who get laid off find jobs relatively quickly elsewhere, because continuing jobless claims haven’t shown much of an updrift.”
Megan Greene, global chief economist at Kroll Institute:
“If we’re excluding employment data, I’d say consumer and business spending are the most useful. We know there is a huge cash cushion for households (in aggregate) and corporates and so there is no immediate need for retrenchment.
“But there’s a chance we talk ourselves into recession as consumers and businesses cut back in anticipation of a downturn, and that is a matter of psychology rather than economics.”
Dana Peterson, chief economist at The Conference Board:
“We are closely watching leading and coincident indicators for the United States. The composite coincident economic index suggests that we are not in a recession currently. The leading economic index is trending downward suggesting that economic weakness, or even potentially recession, is on the horizon.”
Tiffany Wilding, North American economist at Pimco:
“Historically, some of the best leading indicators are as follows: Yield curve, equity performance, housing permits, hours worked, durable goods new orders, ISM and consumer expectations. The performance of all of these indicators suggest an increasing probability of recession over the next 12 to 18 months.”
Rubeela Farooqi, chief U.S. economist at High Frequency Economics:
In addition to jobless claims, “the confidence measures are also important and give us a timely reading on consumer attitudes. A recent collapse — the Michigan sentiment was at an all-time low — is certainly pointing to a more cautious stance from households going forward. The consumption data are already showing slower momentum after the recent revision, which led us to revise down our forecast.”
IT’S TUESDAY — Behold, the deepest view yet into our universe’s past, courtesy of the James Webb Space Telescope. Meditate on that for a while. Then send us your tips and ideas! [email protected], [email protected], or @katedavidson or @aubreeeweaver.
Senate Finance hearing on the nomination of Jay Shambaugh to be Treasury undersecretary for international affairs at 10 a.m. … Senate Banking hearing on advancing public transportation under the bipartisan infrastructure law at 10 a.m. … Richmond Fed President Tom Barkin speaks at 12:30 p.m.
SITUATIONAL AWARENESS — The Senate is likely to vote this week on the nomination of Michael Barr to be Federal Reserve vice chair for supervision. His confirmation would round out the seven-member board and mark an important win for a White House that has stumbled with financial nominations.
WHY JUDGES MIGHT BALK AT FORCING MUSK TO BUY TWITTER — Our Brendan Bordelon: “Turning Twitter over to a mercurial billionaire forced to pay through the nose for a company he doesn’t want may not bode well for the future of the platform. And while the fine print appears to allow Twitter to force itself on Musk, the Delaware Court of Chancery may hesitate to compel an ownership transfer that undermines a key channel of political communication.
“‘Forcing Musk to buy something he doesn’t want? He’s the richest guy in the world, he might just shut it off,’ said Adam Sieff, a lawyer specializing in tech issues at Davis Wright Tremaine.”
WHAT CAN CRYPTO LEARN FROM THE PANIC OF 1907? — Our Ben Schreckinger writes: “In its broadest outlines, the current crisis has been ‘almost identical’ to 1907 so far, according to Rasheed Saleuddin, a crypto watcher with a PhD in financial history from Cambridge University, specializing in the period around the Panic. This time, losses in speculative crypto ventures have shaken faith in the crypto-based lenders they had borrowed from, and a similar rush to withdraw deposits.”
BIDEN’S ECONOMIC PLAN HITS CRUNCH TIME — Bloomberg’s Erik Wasson: “Crunch time has finally arrived for President Joe Biden’s economic agenda as congressional Democrats scramble for a deal on a slimmed-down version of what was once a multi-trillion-dollar overhaul of domestic policy. The Senate aims to pass the revised package before its summer recess begins Aug. 8, a move that would line up a win for Democrats defending their slim congressional control ahead of November’s midterm elections.”
GLOBAL TAX TALKS HIT ANOTHER DELAY — NYT’s Alan Rappeport: “The most ambitious tax overhaul in a century faced a new setback on Monday when the Organization for Economic Cooperation and Development, which is overseeing the global negotiations, said that proposed rules for how the world’s largest companies would be taxed would not be unveiled until the middle of next year.”
—Meanwhile, congressional Republicans are blasting Secretary Janet Yellen over Treasury’s decision to end a decades-old tax treaty with Hungary in retaliation for Hungary blocking Europe’s implementation of a global minimum tax on the largest multinational corporations.
LIMITING RISKS POSED BY THE FEDERAL HOME LOAN BANKS — Former Fed Governor Daniel Tarullo, in a new post on the Brookings Institution blog, calls on the Federal Housing Finance Agency to take several steps to limit risks to the financial system posed by the FHLBs. “Most lending by FHLBs today is only very loosely connected to their mission of promoting housing finance. But their current business model of borrowing extensively in short-term funding markets and providing longer-term funding to their depository institution and insurance company members carries risks for the financial system.”
RELIEF ELUDES MANY RENTERS AS RATES RISE — NYT’s Jeanna Smialek and Conor Dougherty: “Rents have been rising swiftly across America for much of the pandemic era, and housing experts are warning that they could now receive a boost from an unlikely source: the Federal Reserve.”
FED’S BOSTIC CONFIDENT ECONOMY CAN HANDLE ANOTHER HUGE RATE HIKE — Bloomberg’s Jonnelle Marte: “Federal Reserve Bank of Atlanta President Raphael Bostic said the US economy can cope with higher interest rates and repeated his support for another jumbo move when the central bank meets later this month. ‘Right now I’m pretty comfortable,’ he told reporters in a conference call Monday.”
St. Louis Fed President Jim Bullardis equally confident — AP’s Christopher Rugaber: “Now we have lots of inflation, but the question is, can we get (inflation) back to 2 percent without disrupting the economy? I think we can,” he said.
But Kansas City Fed President Esther George warned that ‘abrupt’ rate changes could strain the economy, Reuters’ Howard Schneider reported. “‘With inflation running at a 40-year high, ‘the case for continuing to remove policy accommodation is clear-cut,’ George said in remarks prepared for delivery to a labor-management conference in Missouri. But ‘the speed at which interest rates should rise…is an open question.’”
NEW YORK FED SURVEY FINDS LONG-TERM INFLATION EXPECTATIONS FALLING — WSJ’s Michael S. Derby: “Americans are expecting lower inflation increases over the longer run, amid a sharp drop in the projected rate of home-price increases, the Federal Reserve Bank of New York said in a report Monday. The bank said in its June Survey of Consumer Expectations that three years from now, respondents see inflation at a 3.6 percent rise, down from a 3.9 percent increase in May.”
Stephanie Addison has joined the American Securities Association as vice president of public affairs. Addison was most recently senior communications director for the Farm Credit Council, and worked previously for Texas GOP Reps. Randy Neugebauer and Jeb Hensarling.
International investors are rapidly unwinding what was once a popular trade in Chinese bonds. — WSJ’s Rebecca Feng
Note to the G-7 and the US Treasury Secretary: Russia is still raking it in from oil, even if its exports are showing signs of ebbing. — Bloomberg’s Julian Lee
Gasoline prices are falling almost as quickly as they rose, creating new headaches for the mom-and-pop entrepreneurs and other independent operators who run roughly half of U.S. gas stations. — WSJ’s Benoît Morenne