Vital Statistics:
Stocks are flattish this morning on no real news. Bonds and MBS are up.
The OECD cut their growth outlook for the US from 2.2% to 1.6% based on the impact of tariffs, decreased immigration and a smaller Federal workforce. Global growth forecasts were also cut. “Global GDP growth is projected to slow from 3.3% in 2024 to 2.9% this year and in 2026 … on the technical assumption that tariff rates as of mid-May are sustained despite ongoing legal challenges,” the OECD said.
That said, the longer-term forecast, at least for the US is better as AI should prove to be a significant boost to productivity. “I think if we are able to get trade agreements between countries, not only between China, United States, but also other parts of the world and if we are able to reduce uncertainty, we do believe that we might be on the cusp of something quite significant,” Pereira said.
The AI-driven productivity boost will probably affect the US more than the rest of the world, which will increase the economic gap between the two areas. In fact, the cost-effectiveness of AI will probably lead to a lot of knowledge jobs overseas being re-shored to the US.
The manufacturing economy contracted in May, according to the ISM Manufacturing Survey. “In May, U.S. manufacturing activity slipped further into contraction after expanding only marginally in February. Contraction in most of the indexes that measure demand and output have slowed, while inputs have started to weaken.”
Demand indicators like new orders and backlog remain muted, however inventories are low which is historically a good indicator of growth ahead. Production indicators improved from exceptionally low readings in the month before. That said, production has been weak for a while and predates the tariff issues. Input indicators also fell.
Overall, tariffs are wreaking havoc on the manufacturing sector, however if we get some trade deals over the next 90 days, this should prove temporary and manufacturing could provide a boost going into the latter half of 2025.
Mortgage delinquencies ticked up a basis point to 3.22% according to the ICE Mortgage Monitor. Foreclosure starts increased 13% on a YOY basis. The ICE Mortgage monitor uses McDash data, which excludes some of the FHA universe, so DQs might be a bit higher.
Construction spending fell 0.4% MOM and 0.5% YOY. Residential construction fell 0.9% MOM and 4.8% YOY driven by multifamily which fell 11.3% on a YOY basis.
