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By

Joseph Khoury

The outlook for consumer demand has not improved.

Last week, we highlighted the deceleration in retail sales and companies reporting a slowdown in consumer demand. In the current environment, where the trend in macro data has been negative, it’s important to also take a micro approach by looking at what individual businesses are experiencing and guiding towards. Over the next few weeks, we...
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Consumer spending is trending lower.

At the beginning of the year there was a lot of conversation around a resilient consumer as the Personal Consumption Expenditures component of GDP accelerated. After that release, we highlighted the intra-quarter downward trend in that measure using the monthly series. More recently, we have seen spending trend lower in the monthly U.S. Census Bureau...
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U.S. 10-year Treasury yield declined despite rate hike.

On Wednesday last week, the Federal Reserve raised its target rate by twenty-five basis points to 5.00% – 5.25%. The pace of the current hiking cycle would suggest economic growth and inflation are accelerating. However, market-based indicators of those measures do not confirm that view. If long-term expectations for economic growth and inflation were accelerating,...
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A divergence in data from start to finish for 1Q23.

Going back to January, we expected to see a continued slowdown in economic activity. We observed a deceleration across consumption, production, and order growth throughout 2022 and noted we would likely see a deceleration in GDP if that trend were to hold. The q/q seasonally-adjusted annualized rate (SAAR) came in at 1.1%, a deceleration from...
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Global inflation measures continued to decelerate in 1Q23.

Consumer prices have mostly decelerated from their peak growth rates globally. The y/y percent change in the global quarterly aggregate has slowed compared to the prior quarter. On a rate of change basis, prices have slowed sequentially since 3Q22, and 1Q23 was the fastest deceleration since 2Q09.   Source: Macrobond.  Most countries peaked between the...
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Lending activity data has not improved to start 2023.

Commercial bank lending is a key driver of real economic growth. Historically, banks tend to tighten lending practices in periods of economic weakness. There is a reflexive and causal aspect to these setups where lending slows because the economy is slowing, and the economy slows more because lending is slowing. If commercial bank lending declines,...
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Key macro data has decelerated, yet the labor market seems healthy.

Since the bank failures in March, the conversation around a possible recession has shifted more firmly toward ‘when’ not ‘if’. However, there are Fed officials and financial commentators noting the recent labor market data as an indicator for strength in the economy. “Despite the slowdown in growth, the labor market remains extremely tight. The unemployment...
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Keeping an eye on collateral.

Access to high-quality liquid assets (HQLAs), such as short-term government securities like U.S. Treasury Bills, is a critical component to bank lending activity. Banks need collateral for several reasons, but we tend to track demand for collateral because of its importance to banks when it comes to credit formation. Banks’ ability and willingness to lend...
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Inflation measures in the U.S. continued to decelerate on a rate of change basis in February

Throughout 2022, there was much debate on whether inflation measures would continue to accelerate toward record growth rates. Since the middle of last year, we have been discussing our view that inflation would likely slow on a rate of change basis as the comparison set got tougher and consumer demand decelerated. Last week we received...
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Elevated bond market volatility heading into the next FOMC meeting.

Over the last few months, we have been noting the shape of the U.S. Treasury yield curve. Expectations for more rate hikes increased as the Fed continued to be hawkish, and the curve inversion worsened. The long end is being driven by a decelerating economic outlook while the front end is more responsive to Fed...
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