More signs that the economic narrative may be undergoing a major shift

There is more evidence that the economic narrative may be A major shift is taking place.

For months we have been living in an economy Strong demand, lagging supply, causing inflation to soar. We now appear to be moving into a phase where demand growth is cooling and supply chains are loosening, which should lead to lower inflation.

According to Census Bureau data Posted Wednesdayexcluding non-defense capital goods orders for aircraft – aka core capital expenditure Or business investment – up 0.3% in April to a record $73.1 billion.

While the 0.3% growth rate slowed from 1.1% in March, the slowdown is good news for the likes of the Fed. Actively cool down economic growth Efforts to reduce inflation.

“This is consistent with our view that economic activity is flexing rather than collapsing under the influence of higher interest rates,” Michael Pierce, senior U.S. economist at Capital Economics, said in a note on Wednesday.

Core capex growth representative huge economic tailwind. It continues to grow, albeit at a slower pace, which bodes well for growth across the economy.

according to S&P Global flashes U.S. manufacturing PMI Those emerging economic trends continued into May, the report released Wednesday showed. Specifically, the composite output index fell to a four-month low of 53.8 in May. For the index, any reading above 50 indicates growth, so a falling number indicates that growth is decelerating.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Since peaking in March, growth has slowed, especially in services, as the Omicron wave shows signs of abating pent-up demand after the economy reopens,” wrote on Wednesday.

Consumer spending growth cools as excess savings are tapped

Growth on the consumer side also appears to be cooling.

according to a Bank of East Asia report Data released on Friday showed that personal consumption expenditures, or consumer spending, rose 0.9% month-on-month in April, a record high. However, it was a healthy deceleration from March’s 1.4% growth rate.

Spending as a savings rate (i.e. the difference between income and spending) fell to the lowest level since September 2008.

While the development itself is troubling, it comes after consumers spent more than two years Accumulated excess savings of over $2 trillion.

“In recent months, households appear to have been consuming the ‘excess’ accumulated in the early stages of the pandemic in an effort to stimulate consumer spending,” JPMorgan economist Daniel Silver wrote in a note Friday. savings’.”

As we often discuss at TKer, these excess savings represent huge economic tailwind. For a while, you could argue that This fuels inflation. but now it seems Increase spending as economy slows.

The news of the slowdown is not quite That kind of thing to celebrate. But that’s exactly what helps bring down inflation.

More signs that supply chains are loosening

S&P’s PMI report also hints that there may be some light supply chain disruption.

“In particular, manufacturers also report that capacity continues to be constrained by supply shortages, although These bottlenecks show further encouraging signs of relief,S&P’s Williamson said (emphasis added).

We also haven’t heard of ships idling outside the port waiting to unload in a while.

“U.S. port data suggests backlog has eased,” JPMorgan economists wrote last week. “Notable examples are the ports of Los Angeles and Long Beach, which handle about 40 percent of imports to the United States.”

It’s not just the sea that relaxes. Freight also appears to be relaxing.

According to Bank of America’s truck shipper survey for the week ended May 19, “Shippers are finding it easier to secure capacity (the highest level since June 2020).”

Unfortunately, at least some of these signs of supply chain loosening can be explained by slowing demand for commodities. But again, This is the driving force to ease inflation.

More signs the labor market is cooling

Bloomberg reports Tech giant Microsoft is slowing hiring in its Windows, Office and Teams businesses.

PayPal lays off 83 people at its headquarters in San Jose.

These are all anecdotes.But these developments are in line with the Fed’s goal of cooling inflation by Cool the labor market first.

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Signs of peaking inflation

Last month, I wrote On how economists across the board say inflation — measured by the year-over-year increase in prices — has peaked.

On Friday, we had more evidence that this may be the case.

This Core PCE Price Index – The Fed’s preferred measure of inflation – climbed 4.9% in April from a year ago. This is down from 5.2% in March and a peak of 5.3% in February.

In the past three months, the core PCE price index rose 0.3% month-on-month.

Too early to claim victory over inflation

“A lot of people are touting March as the peak of inflation and hoping that inflation will start to cool down from here,” said Diane Swonk, chief economist at Grant Thornton. Say Friday.. “We’re not so sure given the risks we’re still at with the war in Ukraine and the Chinese blockade. Either way, it’s important to note that any cooling we see will have a high floor. Overall and core PCE The indices are all well above the Fed’s 2% target.”

In fact, inflation has a long way to go from 4.9% to 2%.

So we have to keep an eye on the incoming data to see if The economic narrative is indeed undergoing a major shift.

More from TKer:

rear view 🪞

📈 Stocks surge, snapping seven-week losing streak: The S&P 500 rose 6.6% last week, snapping a seven-week losing streak. It was the biggest weekly gain since November 2020. The index is currently down 13.3% From a closing high of 4,796.56 on Jan. 3, but 6.6% above its closing low of 3,900.79 on May 19. For more information on market volatility, read this and this. If you want to understand the bear market, read this.

💰 Company insiders are buying stock in their company: From JPMorgan: “…Company insiders have a non-consensus view of most sectors and are aggressively buying dips, with net insider buying activity reaching 1STDev above trend.”

📈 Mortgage rates are still high, but will fall: The average rate on a 30-year fixed-rate mortgage fell to 5.10% from 5.25% the previous week.here is Freddie Mac: “Mortgage rates fell for the second week in a row as the economy faced multiple headwinds. Despite the recent slowdown in rates, the housing market has slowed markedly and the slowdown is spreading to other areas of the economy, such as consumer appetite for durable goods. expenditure.

not clear

🏡 New home sales fall: Sales of newly constructed homes fell 16.6% MoM to an annual rate of 591,000 units. Census Bureau data.

😤 Consumer confidence plummets: University of Michigan Consumer Sentiment Index fell to 58.4 in May, its Lowest level since August 2011“The recent decline was largely driven by persistently negative perceptions of current housing and durable goods buying conditions, as well as consumers’ perceptions of the future economic outlook, primarily due to concerns about inflation,” the survey said.

Remember that deteriorating emotions Spending has not dropped in recent months. For more information on emotions, read this.

🛫 people doing things: from Emily McCormick of Yahoo Finance“On Thursday, Southwest Airlines and JetBlue Airways both raised their quarterly guidance, citing strong demand heading into the key summer travel season. Both increases come weeks after the companies initially reported their forecasts last month. ongoing.”

This follows a similar announcement from United Airlines last week. All in all, it is clear People refuse to put their lives on hold.

Hit the road 🛣

It’s a work week in America. The April job vacancies and labor turnover survey is released on Wednesday, followed by the April employment report on Friday.Job growth is very strong record vacancies Enable workers to earn higher wages.

However, there are nearly two job openings for each unemployed.this Good news is blamed on high inflation, which is bad,This is Fed aims to fix problems by tightening monetary policy.

U.S. financial markets will be closed on Monday for Memorial Day.

Sam Ro is the founder of Tk.com, follow him on Twitter @SamRo.

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