Trend watch and what’s new this week
Given roughly six months with a minimal rate of COVID-19 related hospitalizations and over four months of persistently low death rate, we are turning the page on U.S. COVID-19. While we will continue to monitor the data and report significant changes or trends, we will no longer include COVID-19 charts every week.
The activity-based data (slides 5 and 6) have continued to strengthen. Restaurant bookings dipped after a strong rebound last week. Meanwhile, hotel occupancy continued to climb, hitting 72.3% nationally this past week, hits highest level since August 2019.
Similarly, air passenger counts rose for the fourth straight week, matching the longest streak this year and is the longest since 10-week span during the spring and summer of 2021. Counts are running 9% below the same week in June 2019, which is quite remarkable. Staffing also increased WoW.
Mixed signals within manufacturing
Three separate manufacturing gauges showed differing views. The Institute for Supply Management (ISM) Manufacturing Index fell sharply in June (slide 7). Within the components, new orders contracted, but price paid fell (improved) to a five-month low.
Also, S&P Global’s U.S. Manufacturing Index fell sharply in June, its largest monthly decline since the pandemic. Similarly, the new orders component contracted for the first time since the pandemic.
Although the ISM and S&P Global indices both cooled, each indicates that manufacturing activity expanded in June. Also, two manufacturing surveys from regional Federal Reserve Banks declined sharply in June.
On slide 8, new orders for durable goods in May had the largest increase in four months. Moreover, new orders for core capital goods jumped to a fresh new all-time high.
Other data improving
Pending home sales rose in May, snapping a six-month decline streak. Also, personal income and personal spending rose in May.
On slide 9, the Fed’s favorite inflation gauge slipped for third month in a row, though remains elevated.
Trucking volumes continued to climb in June, hitting a fresh all-time high, going back 30 years. It suggests that supply chains are normalizing, and that demand remains solid.
Just like the 2021 economic rebound was unprecedented, we have entered a period that will feel dramatically different compared to the past cycles. Demand is coming down from the unsustainably strong period, but in many cases remains well-above pre-pandemic levels. Frankly, it feels unusual, which may explain why so many people believe we are are already in a recession. Specifically, sharp declines in activity are typically associated with a recession, but businesses are still generally busier than the pre-pandemic period and continuing to hire, and consumers are buying and doing things. Thus, it may feel like a recession, but it technically isn’t because production is still humming along, and employment remains strong.
Also, there’s a unique dichotomy compared to prior cycles. For instance, the U.S. both is largely energy independent and less dependent on external demand than any point in our history. Yet, as we saw in the aftermath of the pandemic, supply chains are global and vulnerable to many factors, including production disruptions, shipping bottlenecks, and escalating shipping costs.
Still, we are concerned about the accumulating evidence of a slowing economy, including now within manufacturing. That said, there are some differences and nuance between the ISM and S&P Global surveys. For instance, the ISM survey is larger and has more international exposure, while the S&P Global survey is more domestically-focused and includes smaller companies.
Additionally, the overall economy can continue to expand despite these manufacturing gauges contract as happened most recently in 2012, 2013, 2016, and 2019. Nonetheless, both surveys showed a pullback in new orders, which is not a good sign.
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