FINANCIAL FOCUS
WHAT’S UP ?
In this installation of Financial Focus, we will discuss the topic of “What’s Up” in the U.S. economy. The short answer is – Not much! or at least “Not anything good.”
Despite what you may hear in some media outlets, the U.S. economy has been on “thin ice” for quite some time. The most common weekly and monthly reports that are covered in the mainstream media generally include inflation, non-farm payroll (jobs created), unemployment levels, consumer spending and sentiment figures, as well as some housing sales information. The real numbers suggest quite a different story, however, as many economic indicators are broken down into specific categories that are not reported, and some get “revised,” which again, goes basically unreported.
In the UP column presently are – debt (all-time highs), unemployment, foreclosures, interest rates, inflation (food & energy prices), the U.S. Dollar (until June 1), the daily Put to Call Ratio, insider selling, home prices, property taxes, and insurance costs.
The DOWN category consists of many LEI’s, (please see our upcoming Indicator Insights - monthly update blog), the U.S. Dollar (since June 1), personal savings, precious metals like gold, copper, nickel, retail spending, consumer sentiment, durable goods orders, the ADL, oil (after the recent squeeze), home buyers/sales/permits, jobs, airline sales/stocks, and overall affordability.
Personal debt (as well as national debt) is at an all-time high, especially when considering high-interest credit card balances, based on recent studies. To exacerbate the problem, every time the Federal Reserve raised the prime rate, credit cards also raised their rates, regardless of your credit score, as most accounts have adjustable rates. These rates have reached incredibly high levels in the high 20 and 30% range! As a result, the monthly required payment also rises, which makes it more difficult to pay, or reduce the principal balance. In addition, student loan payment resumption, coming within the next few months, will also “squeeze” the consumer, and effect recreational/discretionary spending, further lowering some of the indicators. Another sign of growing financial “hardship” is the fact that personal savings have reached all-time “lows,” and 401k withdrawals have surged.
Real Estate continues to be very difficult to afford, especially for first time home-buyers, with the continued high rates, inflated prices, and low inventories (although that may be starting to change – but not for good reasons). Unemployment, defaults, new government regulations, and rising insurance costs and property taxes are all wreaking havoc on the consumer as well. In the last few months, housing starts (a homebuilder measure based on new building permits) has been declining, putting further pressure on the industry. Please see our previous Real Estate – Do I Buy? (dated 4-15-24) and Is it Time? (dated 6-15-24) blogs for more details.
Inflation also continues to be very stubborn, as it was driven up so high, that it is difficult to reduce. The expectation for the start of Fed rate cuts has been delayed for several months, and still may not happen at all in 2024. The continuing purchasing of our own debt and skewed reports of a booming economy are keeping rates high (as many of the underlying indicators do not match), and the stock market increasing. Remember that inflation numbers reveal how much higher costs are relative to the previous month, or year. For example, if inflation was 5% last year, and 3% this year, inflation is 8% since two years ago, not 3%. Also remember that these reported numbers, often exclude food and energy, the two most expensive and necessary consumer products.
Bond yields have remained steady since rising through the Spring, and have been in a non-directional range for the past month or so, despite the lack of rate cuts. Unemployment, CPI, etc. constantly fluctuate, get revised and a slightly downward trend is likely to develop. Stocks like TLT (a 20-year treasury bond ETF) generally rises as rates fall, and vice-versa. This ETF, and others like it, provide a more risk-off approach with guaranteed steady income/dividends.
Though the equities markets have continued to rise, there are clear cracks beginning to finally emerge in the economy. Gains will likely continue in the short term, however, day and swing-traders should “beware” a possible coming correction (discussed in several recent blogs). Be cautious through the summer and early fall…
Our publication, When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon) provides information and guidance on many of the lesser-known sentiment indicators and underlying themes regarding the market. Please refer to our publication for full details.
For additional discussions and education, please continue to visit our BLOG section here on ASTRO-FIN, where we provide periodic updates on a variety of topics.
