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Morning Report: The US economy stagnates


Vital Statistics:

Stocks are higher as markets digest the Fed’s hawkish language from Wednesday. Bonds and MBS are flat.

The 10 year briefly touched 4.5% in the overnight session, which is the highest level since 2007. A combination of rising oil prices, economic resilience in the US and massive government supply is pushing yields higher.

The Fed Funds futures are still predicting a roughly 40% chance of one more rate hike in 2023, taking to heart Jerome Powell’s language of “proceeding carefully” on rate hikes going forward. The December 2024 Fed Funds futures moved up their forecast by about 25 basis points after the Fed meeting.

December 2024 futures:

The average interest rate on US credit cards is over 22%, according to recent data. About 37% of credit card cap out their interest rate at 29.99%. At those sort of levels, it is easy to get trapped in credit card debt. At some point even with mortgage rates where they are, a cash-out debt consolidation refi could make sense for people.

The US economy experienced stagnation in output at the end of the third quarter according to the S&P Flash PMI. The US economy put up the worst performance since February as demand fell. Pricing pressures remain, largely driven by rising energy prices, while backlog gets worked off. We still aren’t seeing layoffs yet, but as demand flags, that should begin to happen.

“PMI data for September added to concerns regarding the trajectory of demand conditions in the US economy following interest rate hikes and elevated inflation. Although the overall Output Index remained above the 50.0 mark, it was only fractionally so, with a broad stagnation in total activity signalled for the second month running. The service sector lost further momentum, with the contraction in new orders gaining speed.

“Subdued demand did not translate into overall job losses in September as a greater ability to find and retain employees led to a quicker rise in employment growth. That said, the boost to hiring from rising candidate availability may not be sustained amid evidence of burgeoning spare capacity and dwindling backlogs which have previously supported workloads.

“Inflationary pressures remained marked, as costs rose at a faster pace again. Higher fuel costs following recent increases in oil prices, alongside greater wage bills, pushed operating expenses up. Weak demand nonetheless placed a barrier to firms’ ability to pass on
greater costs to clients, with prices charged inflation unchanged on the month.”

Q3 GDP Tracking: Around 3%

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