Morning Report: Biden says a recession isn’t inevitable

Vital Statistics:

 LastChange
S&P futures3,68618.85
Oil (WTI)114.88-2.84
10 year government bond yield 3.23%
30 year fixed rate mortgage 5.99%

Stocks are rebounding this morning after yesterday’s blood bath. Bonds and MBS are down.

Biden said that a recession isn’t inevitable in an interview with AP. On the subject of what voters should take away from the fact that economists suggesting a recession is possible next year, he said:

“They shouldn’t believe a warning. They should just say: “Let’s see. Let’s see, which is correct.” And from my perspective, you talked about a recession. First of all, it’s not inevitable. Secondly, we’re in a stronger position than any nation in the world to overcome this inflation. It’s bad. Isn’t it kind of interesting? If it’s my fault, why is it the case in every other major industrial country in the world that inflation is higher? You ask yourself that? I’m not being a wise guy. Someone should ask themself that question. Why? Why is it? If it’s a consequence of our spending, we’ve reduced the deficit. We’ve increased employment, increased pay. There was a survey done uh, uh, by the, uh, I forget which one it was, which one it was now, about three months ago. You had more people had lower debt (inaudible) credit cards, more savings in their savings account, higher pay in the job they had, more satisfaction in the job they had and they were in good shape financially.”

The Conference Board’s Index of Leading Economic Indicators fell 0.4% in May. “The US LEI fell again in May, fueled by tumbling stock prices, a slowdown in housing construction, and gloomier consumer expectations,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The index is still near a historic high, but the US LEI suggests weaker economic activity is likely in the near term—and tighter monetary policy is poised to dampen economic growth even further.”

Given the abrupt rise in interest rates, I suspect the LEI hasn’t caught up to the new reality yet. Even the MBA forecast from earlier this month has a Q2 and end of year forecast for the 30 year fixed rate mortgage around 5%. It is currently 6%. Last week’s CPI report was a game changer.

Industrial production rose 0.2% in May, which was a touch below consensus. Manufacturing production fell 0.1%. Capacity Utilization inched up to 79%. Capacity Utilization is much lower than it was in the 1970s, and is at least one positive statistic on the inflation front. Of course the economy is much different today – we are no longer a manufacturing-focused economy but this is at least one positive development.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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