Fed Chair Powell Says Fed Efforts Might Push Economy into Recession… In testimony before the Senate Banking Committee, Powell said that it is getting harder to engineer a soft landing.
What it means— And in other news, water is still wet, and the sky remains blue. We didn’t learn anything new from the Fed chair, but we did get to watch senators, who passed several stimulus bills and flooded the economy with free cash, blame the Fed for letting inflation rise to current levels. Equity investors took the comments in stride as the markets bounced around looking for direction, but bond investors pushed rates lower. Bond traders are trapped between more inflation or a recession with Fed representatives supporting another 0.75% bump in July. We could be on the verge of a “bad news is good news” investing environment, where the rising chance of a recession portends a pause in Fed tightening measures, which is good for the markets.
Existing Home Sales Dropped 3.4% in May, Are Down 8.6% From Last Year… Rising home prices and higher mortgage rates took a bite out of home sales.
What it means— Everyone expected higher mortgage rates to throw cold water on the housing market, just as the Fed intended, and it has happened. The big question is, “What happens to home prices?” Even though existing-home sales dropped for the fourth consecutive month and are down almost double digits over last year, the median existing-home sale price reached $407,600, the first time it has ever topped $400,000.
This is still a market defined by inventory. The number of homes for sale climbed 12.6% to 1.16 million units in May, but is still 4.1% lower than this time last year. At the current, slower sales pace, the market has 2.6 months’ worth of inventory, slightly higher than the 2.2 months’ worth of inventory in April. To achieve a six-month supply, which is considered balanced between buyers and sellers, sales would have to fall from the current rate of 5.41 million units per year to 2.2 million units, inventory would have to jump to 2.75 million units, or we’d have to get some combination of the two. For now, it remains a seller’s market.
The common assumption is inflation hurts low-income households most. The data shows income levels $150-200,000 are struggling the most. Higher income professionals are opting for rental housing with rents 15% higher Year over Year creating extended problems for the Fed’s inflation fight. Higher home prices and rents combined with rising wages makes the inflation fight very difficult.
New Home Sales Unexpectedly Jump 10.7% in May… April new-home sales were revised higher to an annualized rate of 629,000 units and May sales reached 696,000.
What it means— Many news outlets reported the release with “Yes, but…” statements as they played down the higher sales, which suggests that sales must drop in the months ahead because of higher mortgage rates and the impending recession. That makes sense, but there’s still that little thing about price. The median new-home sales price eased a mere 1% from the record high of $454,700 in April, dropping to $449,000, which is still 15% higher than this time last year. Regarding existing home sales, it’s all about inventory. Even though sales popped in May, inventory rose to 7.7 months’ worth, which shows that builders are bringing new homes to market quickly. We’ll see if the added inventory does anything to bring down prices in the months ahead. First time buyers are still finding it difficult to buy with higher rates.
Initial Jobless Claims Steady at 229,000… Jobless claims have risen slightly after reaching a 53-year low of 166,000 in March.
What it means— Inflation hurts, and stagflation is worse, but as long as people remain employed, the economy won’t suffer dire consequences. Initial jobless claims provide a leading look at the labor market, where we still have roughly 2 openings for every unemployed worker. If jobless claims remain near or below the long-run average of about 250,000, the labor market should remain strong and provide a buffer against a hard economic landing.
President Biden Asks Congress to Repeal the Federal Fuel Tax Temporarily… To provide consumers with a bit of relief at the pump, President Biden asked Congress to stop collecting federal taxes on gasoline and diesel. He also demanded that oil and gas companies increase refining operations.
What it means— President Biden wants to give consumers some relief from high fuel costs, but his policy recommendations won’t do much. Americans pay a bit more than 18 cents per gallon in federal gasoline tax. While every little bit counts, reducing the price of gallon of gas from $5.00 to $4.81 isn’t going to cause widespread celebrations. As for refining, American refineries are operating at more than 93% capacity.
To increase supply, we’d need to increase refining capacity, which is expensive. Also, it would take years for the company to recoup the upfront costs. Few people think the U.S. government will support the oil and gas industry once the current crunch is over. Investing in domestic refining capacity in this environment would be a questionable use of company resources.
For the last decade, oil and gas has been the punching bag of the left, whether the topic has been climate change, the economy or inequality: the left has figured out a way to somehow make oil and gas the enemy – all while they enjoy the fruits of the energy and petroleum produced by these companies. Here’s a list of products made from oil. Four may shock you.
‘Say No!’ Twenty-Five Employees of Swiss Ad Agency Golbach Are Injured While Walking on Hot Coals… The employees were participating in a team-building event in Zurich when the injuries occurred. Thirteen of them were hospitalized. While religious groups have practiced walking on hot coals for thousands of years, most people today connect it with famous motivational speaker Tony Robbins, who implores people to “Say yes!” during the exercise. The latest mishap in Zurich gives people a good reason to “Say no!” and to stay away from team-building exercises.
Data supplied by HS Dent Research
“When the facts change, I change my mind.
What do you do?” ~ John Maynard Keynes
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