In a recent economic analysis by John Beuerlein, Chief Economist at Pohlad Companies, it was revealed that the economy is performing better than expected despite tightening credit conditions. However, upon further examination of key indicators and trends, signs of an impending economic slowdown are evident.
On a positive note, the Federal Reserve’s efforts to curb inflation over the past 18 months have been successful. The Consumer Price Index (CPI) for July showed only a 0.2% increase from the previous month and an overall CPI increase of 3.2% year-over-year. Similarly, Core CPI increased by 4.7% year-over-year.
However, Beuerlein pointed out several concerning factors that could contribute to an economic slowdown:
– Declining GDP: The second reading for Q2 GDP in August was lower than initially reported at just 2.1%, down from Q1’s rate of 2%. Additionally, pretax corporate profits decreased by .04%, marking a decline of -6/5% compared to last year.
– Slowing consumer spending: Inflation has caused consumer spending to slow significantly in Q2 with only a modest annual growth rate of just 1/7%. Real disposable personal incomes also declined slightly while savings rates dropped below pre-COVID levels.
– Eroding credit quality: According to data from New York Fed., there has been an increase in delinquency rates for both short-term and long-term loans as well as non-payment rates on credit cards – resulting in banks setting aside $21/5 billion worth loan loss reserves during this period.
– Regional bank rating cut: Moody’s recently lowered ratings on U.S regional banks due rising funding costs and exposure risks associated with commercial real estate loans – leading many depositors into higher interest-bearing accounts which impacts liquidity negatively.
Overall these developments suggest that we may be heading towards another significant downturn within our economy if not addressed promptly.
