Weekly Macro Update: Aug 20th, 2024

Mostly positive data (inflation, consumer activity, labor); some negative data (industrial production and housing)

TL;DR

Past Week

Positive data on inflation, consumer activity, and the labor market

• Inflation: Both the Producer Price Index (PPI) and Consumer Price Index (CPI) came in lower than expected, indicating that inflationary pressures are easing. This is good news for consumers.

• Consumer activity: The retail sales figures significantly beat estimates and consumer sentiment improved, suggesting the US consumer is resilient.

• Labor market: The lower-than-expected weekly initial jobless claims was positive. However, the slight increase in unemployment and decrease in non-farm payrolls could indicate the beginning of a cooldown.

Negative data on the industrial sector and housing

• Industrial sector: Both capacity utilization and industrial production came in lower than expected, suggesting a potential slowdown in manufacturing and industrial activity.

• Housing market: The housing sector appears to be cooling, with both building permits and housing starts coming in below estimates. This could be a response to higher interest rates and affordability concerns.

This Week

• Federal Reserve Speeches (Tuesday to Thursday, Aug 22nd - 24th)

  • Federal Reserve's economic policy symposium in Jackson Hole, Wyoming

• Initial Jobless Claims (Thursday, Aug 22nd)

  • Watch if reading is below estimates of 230K

• Company Earnings Releases

  • Key releases (chart here) include $PANW $SNOW $ZIM $TGT $EL $CAVA $BIDU $OSIS $ZM $M $LOW $PTON $TJX $WDAY $FN $WOLF $TOL $BILL $SNPS $AAP $DADA $INTU $A $JKHY $LZB $BJ $DY $KEYS $WKHS $CSIQ $MDT $URBN $ROST $BTBT $ADI $SQM $NMM $API $COTY $AREC

Would you mind sharing this with your friends and colleagues? Every bit helps!

Macro Scorecard

The mix of positive indicators (GDP growth, retail sales, services, sentiment) and negative signals (manufacturing contraction, housing slowdown) shows the economy is decelerating but not yet contracting.

• Late Expansion Phase with Signs of Moderation: The economy appears to be in the late stages of expansion, but with signs of moderation:

  • GDP growth remains positive (3.1% YoY), indicating ongoing expansion.

  • Retail sales are growing, albeit at a modest pace.

  • The labor market remains strong with low unemployment (4.3%), though there are signs of cooling with a slight uptick in the unemployment rate and slower job growth.

• Potential Transition to Early Slowdown: Some indicators suggest we might be transitioning towards an early slowdown:

  • Manufacturing PMI below 50 (46.8) indicates contraction in the manufacturing sector.

  • Industrial production has declined (-0.6%), suggesting softening in the industrial sector.

  • Housing starts and building permits are down year-over-year, pointing to a cooling housing market.

• Mixed Signals in Services and Consumer Confidence:

  • The services sector remains in expansion (ISM Services PMI at 51.4)

  • Business optimism has improved slightly, while consumer confidence remains stable but high.

• Inflation Moderation (Disinflation):

  • Inflation indicators (CPI, PCE) show a gradual decline, suggesting that monetary policy tightening may be having its intended effect.

• Labor Market Resilient with Early Signs of Softening:

  • The job market remains strong overall, but the slight increase in unemployment and decrease in non-farm payrolls could indicate the beginning of a cooldown.

  • Shelter inflation still elevated (e.g. the shelter index increased 5.1% YoY, accounting for over 70% of the total 12-month increase)

• Monetary Policy:

  • With inflation moderating and some signs of economic softening, the Federal Reserve might be nearing the end of its tightening cycle.

  • Markets are pricing in 4 rate cuts (by December) with a 74% probability

---

Economic Releases This Week

DISCLAIMER

I do not provide, and no portion of this content purports to be, individualized or specific investment advice and I do not provide investment advice to individuals. All information provided is general in nature and is made without regard to individual levels of sophistication or investment experience, investment preferences, objectives or risk parameters and without regard to the suitability of the content for individuals or entities who may access it.

No information provided should be construed as an offer to sell, or a solicitation of an offer to buy any security or investment vehicle, nor should it be construed as tailored or specific to you, or any reader or consumer thereof. You understand and agree that the content does not constitute specific recommendations of any particular investment, security, portfolio, transaction or strategy, nor does it recommend any specific course of action is suitable for any specific person or entity or group of persons or entities.

Educational Purposes Only: The content provided in this post is for educational purposes only and should not be construed as investment advice or a recommendation to buy, sell, or hold any securities mentioned. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. You should consult your own investment, legal, tax, and/or similar professionals regarding your specific situation and needs.

Sources: The content is based upon information from sources believed to be reliable. I am not responsible for errors, inaccuracies or omissions of information; nor am I responsible for the accuracy or authenticity of the information upon which it relies.

Personal Views and Risk Tolerance: The views and opinions expressed in the content are my own and not those of any of my current, previous, or future employers. The investment strategies and beliefs discussed are personal to me and may not be suitable for all investors. My risk tolerance and investment objectives may significantly differ from yours.

Potential Conflicts of Interest: At any point in time, I may own a portion of or all the securities or assets discussed in the content.

Market Risks and Volatility: All investments involve risks, including possible loss of principal. Investments in cryptocurrencies like Bitcoin are highly speculative and can be extremely volatile. There are risks associated with investing in securities. Investing in stocks, bonds, exchange traded funds, mutual funds, and money market funds involve risk of loss.  Loss of principal is possible. Some high risk investments may use leverage, which will accentuate gains & losses. Foreign investing involves special risks, including a greater volatility and political, economic and currency risks and differences in accounting methods.  A security’s or a firm’s past investment performance is not a guarantee or predictor of future investment performance.

Consult a Professional: Each individual's investment strategy is unique and based on personal financial circumstances and goals. Therefore, you should seek the advice of qualified financial advisors before making any investment decisions. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content on the site before making any decisions based on such information or other content.