Trend watch and what’s new this week
Although the total number of new COVID-19 cases in the U.S. has increased (slide 6), the weekly pace has more than halved in past few weeks (slide 9). In fact, three of the four U.S. regions declined week-over-week, the exception being the West.
The rate of hospitalizations ebbed, but the percentage of COVID-19 patients continued to rise (slide 8). Meanwhile, the death rate has held steady in recent weeks (slide 6). We will continue to monitor it.
Most of the activity-based data (slides 5 and 7) continued to strengthen this past week. Temporary staffing rebounded. Within the travel-related data, hotel occupancy rose to the highest level since August 2021, weekly air passengers topped 15.6 million, while restaurant bookings flipped to positive compared to pre-pandemic levels.
Deeper dive in the data – Key inflation gauge ebbed, business spending holding up, housing weak, not all sectors “over hired”
The Federal Reserves’ (Fed) favorite inflation gauge—the price index of core personal consumption expenditures—slipped for a second straight month (slide 10). Although elevated compared pre-pandemic levels, this bolsters our case that the easing inflation pressures could give the Fed enough cover to throttle back on rate hikes later in ’22 and into ’23.
On slide 11, we highlight new orders for core capital goods, which hit fresh all-time high in April. These are new orders, which suggests that demand for business equipment remains solid despite inflation and higher interest rates.
On slides 12 and 13, we dig into the employment trends of retailers, which seem out-of-step with other sectors.
On slide 14, we highlight new home sales and prices. New home sales dropped for the fourth month in a row, yet prices continued to increase.
Lastly, we updated the container traffic data for the top 5 U.S. ports (slide 15), which dipped in April following a strong March. The total number of new COVID-19 cases in the U.S. decreased (slide 6). In fact, it dropped more than 12% week-over-week, continuing a trend that we highlighted for the past few weeks (slide 9). The rate of hospitalizations ebbed, but the percentage of COVID-19 patients continued to rise (slide 8).
Most of the activity-based data (slides 5 and 7) continued to strengthen this past week. For instance, the truck loading index hit a fresh all-time high in May and temporary staffing continued to rebound. Most of the travel-related data ebbed slightly following the Memorial Day holiday, though hotel occupancy, air passenger counts, and restaurant bookings remained solid compared to their recent trends.
Solid job growth in May highlights U.S. resilience
U.S. payrolls in May increased by 390,000, beating the consensus of 320,000. Meanwhile, the unemployment rate held steady at 3.6% for the third straight month. Yet, some of the internal components of the jobs report ticked lower again in May, signaling that the overheating conditions within the labor market are cooling from a hard boil. On slide 10, we show May’s job growth by industry along with average hourly earnings, which fell for the second month in a row.
Inflation remains a headwind, but some cracks appearing
On slide 11, we highlight the recent spike in U.S. crude oil prices. This will undoubtedly reverberate through other prices, including shipping costs and food prices.
On the other side, we revisit lumber prices (slide 12), which have cracked of late. Lumber prices have quickly dropped below $600 per 1,000 feet from more than $1,400 less than three months ago.
Housing rolling over
On the “Econ-at-a-Glance” (slide 4), we downgraded all four of the housing trend indicators to negative, indicating that are no longer favorable economic growth, from neutral. This is a direct result of higher interest rates, which have jumped dramatically in 2022.
Nearly every housing-related metric has rolled over in the past few months from construction and mortgage indicators to prospective buyer traffic. For example, new and existing home sales have declined month-over-month for four and three consecutive months, respectively. The exception has been home prices, which have largely continued to climb due to tight supply. Here, too, inventories have started to rise, and price should begin to soften in the coming months. That said, given the extreme lack supply in some U.S. markets, we don’t expect to see a big decline in home prices any time soon.
We acknowledge the difficulty getting a “clean” read on the U.S. economy. There are most certainly cross currents within the economic data, whereby some data is soft, such as nearly everything associated with housing, and other data is strong, such as travel and service-related metrics. Additionally, several manufacturing gauges, including the ISM Manufacturing survey and new orders for durable goods, strengthened in May from softness in April.
However, the labor market remains firmly in the “strong” camp, as evident in the May jobs report. Aside from strong hiring broadly, it is corroborated by a nearly 50-year low in initial jobless claims and record levels of job openings and quit rates. These are not the hallmarks of a weak economy and nor has the U.S. has ever had a recession while maintaining strong job growth. These are the underpinnings of our “no recession” call for the next 12-months.
That said, some of the internal components of the jobs report ticked lower again in May, signaling that the overheating conditions within the labor market are cooling from a hard boil. For example, average hourly earnings slipped for the second month in a row, though remaining well above pre-pandemic levels. Also, in addition to the job losses within retail trade, we are beginning to see companies shed workers at the sub-industry level. Meanwhile, the unemployment rate and hours worked held steady, and the labor force participation rate continues to grind higher.
The Federal Reserves (Fed) certainly has a challenging task – cool inflation but don’t interrupt the strong recovery. And do it in real time with incomplete data. We feel the Fed can engineer a “soft-ish” landing, as Chair Powell mentioned in recent weeks, which is a euphemism for raising interest rates without triggering a recession. Inflation appears to be peaking based on non-employment data as well as the some of the wage trends. Although elevated compared pre-pandemic levels, this bolsters our case that the easing inflation pressures could give the Fed enough cover to throttle back on rate hikes later in ’22 and into ’23.
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