Economic Commentary

Financial press headlines continue to warn of recession and a slowing of the US and global economy, and we will focus on both in this month’s article. Let’s start with the tool that I believe provides a real time pulse rate for our underlying economy: the New York Fed Weekly Economic Index. Although I have explained that the index provides real time data on labor, consumption and production, it might be helpful to peel away a few layers of that onion and identify specific categories that the New York Fed measures in real time. The index is composed of the following components:

• Same store sales
• Initial jobless claims
• Continuing jobless claims
• American Staffing Association Index
• Weekly raw steel production
• Electric utility output
• Federal sales tax to end users
• Federal withholding taxes collected

The current (April 23, 2022) New York Fed weekly index is 4.31, which is down slightly from the prior week at 4.41, and down from the prior month same week of 4.71. The reading in the current week suggests an annual GDP growth rate of 3.57%. Much of the decline is a reduction in purchased fuel and retail sales, offset by increased steel production, electricity output, employment and a reduction in initial, as well as continuing, unemployment claims.

Last week, the National Bureau of Economic Research (NBER) reported that U.S. GDP fell 1.4% (annualized) in the first quarter, prompting many to announce that we are in a recession. Traditionally, a recession is identified as measured economic activity declines (GDP) in two consecutive quarters. In recent years the NBER has moved slightly from that definition to one that states: significant decline in economic activity spread across the entire economy lasting more than a few months that would be normally visible in real income, employment, wholesale and retail sales and production. The definition is a bit more complete than simple GDP results, and perhaps a bit more accurate in describing contraction and expansion economic cycles. It is too much to expect that the press and media will ferret out all of the above economic activity components and will continue to focus on simple GDP results. In any case, the release of a quarter’s GDP results are “old news” and a rearview mirror look at past data which is why the real time looks at components of the New York Fed weekly index seem helpful. Could we already be in a recession? Sure, but it is far more helpful to understand the trend in place and the velocity of that trend in the current period of time.

Knowing that consumer confidence drives consumption, and that consumers represent over 70% of GDP measured activity, our interest in surveys that measure consumer confidence is always high. There are two widely recognized surveys that measure the temperature of consumers’ purchasing appetites. The Conference Board is a non-partisan member-driven nonprofit that comprises every sector of the economy. Their most recently published survey reveals that consumer confidence in March fell slightly from February, from an index rating of 107.6 in February to 107.3 in March. The short term survey, which drills down specifically to jobs and production, rose slightly to 77.2 from 76.7,  while the Present Situation survey, measuring current employment and wage activity, declined slightly from 153.8 to 152.6. Mixed results for certain, but not significant in either direction. The US Consumer Confidence Index produced by the University of Michigan includes random samples of households and reported their March results at a +5.8 reading in March over February, but a decline of -26.16 from March of 2021. The main theme in the anecdotal responses to the household survey is that consumers are employed, but nervous, with the Ukraine war, high energy prices, and food inflation front and center.

Automobile production represents a rather large dichotomy. Monthly increases in US production, and a ramping up of annual sales projection, flies in the face of logistical supply issues that continues to see empty new car lots. Patrick Gelsinger, CEO of Intel Corporation, said in a recent interview that he expected the processor chip shortage to last well into 2023. This announcement wasn’t new news, but seemed to attract a good deal of attention. Automotive manufactures have focused their available supplies where the consumer appetite is strong: in SUV, light truck and EV products. Sales are robust, but are heavily weighted to consumer dealer orders and not dealer inventory. Discounts are rare and, thus, manufacturer as well as dealer income will likely continue to be strong.

Macro-economic analysts continue to focus on housing, looking for evidence of either a stall or initial decline in sales and price momentum. The S&P Case-Schiller 20-City Composite Price Index for February 2022 is up 2.41% at 298.93, while the National Index is up 1.78% at 286.68. March data will not be released until late May, but National Realtor Association surveys confirm the Case-Schiller data with little, if any, evidence of a turn in demand for or price of new or existing homes.

COVID is still with us, but in a markedly more benign way. Infections have increased while hospitalizations and deaths have declined. One World Data suggests that global hospitalizations are down 53%, reflecting significant progress in global vaccinations. A well-kept secret, judging by the lack of media attention, is the significant growth in vaccination rates among children. We now have in excess of 220 million fully vaccinated in the US, with +70% vaccination rates in children 5 through 12 years of age. Those 65 years of age, and presumably the most vulnerable, are vaccinated at the 90% level and boosted at the 68.8% level. While continuing to be present, COVID is becoming less interruptive to life, and therefore consumer activity. While bungled in a variety of ways, a post one year review of our country’s vaccination effort seems to be inching towards being more, rather than less, successful.