In a recent economic commentary, John Beuerlein, chief economist at the Pohlad Companies (Northmarq’s parent company), analyzed data from August 2023 and noted that despite ongoing tightening credit conditions, economic activity is holding up better than expected. However, upon closer examination of various metrics and the broader context, signs of an impending economic slowdown were identified.
On a positive note, the Federal Reserve’s efforts to curb inflation over the past 18 months have shown promising results. The Consumer Price Index (CPI) for July reported a modest increase of 0.2% compared to June’s figures and an overall year-over-year CPI increase of 3.2%. Similarly,the Core CPI saw a year-over-year increase of 4.7%.
However,Bueuerlein highlighted several indicators pointing towards an upcoming economic slowdown:
– Declining GDP: The second reading for Q2 GDP in 2023 showed annualized growth rate at only
2.l%, lower than initial estimates which stood at
2A%. Additionally,
pretax corporate profits decreased by O.A% during this period.
– Slowing Consumer Spending: In Q1,Q1 consumer spending was strong with an annualized growth rateof4.Z%, but it slowed down significantly in QZ due to rising prices.This trend continued into July as real disposable personal incomes declined byO.Z% while real consumer spending increased by only O.G%. Asa result,savings rates droppedto their lowest level since before COVID.
– Eroding Credit Quality: Accordingto data fromthe New York Fed,crcdit card balances are onthe riseand delinquency ratesfor both30-daypastdueand60-daypastdueareattheir highest levelsince2019.Banks also set aside $21.S billionin loan loss reservesduringQZ,a significantincreasecomparedto previous years.
– Regional Bank Rating Cut: Moody’sdowngraded ratingsfor U.S. regional banksin August 2023due to increasing funding costsand exposureto commercial real estate loans.Banks are facing higher funding costs as depositors move their money into accounts with higher interest rates,while declining deposits and securities values are affecting liquidity.This is a concerning trend for an economy that heavily relies on credit.
In conclusion, Beuerlein predicts an accelerating economic slowdown in the near future based on these indicators.
