Macro Briefing: 9 August 2022

* FBI searches Trump’s Mar-a-Lago home
* Consumer inflation expectations decline, NY Fed survey finds
* Small Business Optimism Index ticks up but still below 48yr average
* US housing sentiment falls to lowest level in a decade, Fannie Mae reports
* Housing inventory in US soars as homebuyers pull back
* Reducing inflation is going be challenging, says markets analyst Jim Bianco
* Public pension plans suffer worst annual performance since 2009
* 3mo/10yr US Treasury yield curve holds above zero, just barely:

A US recession now would be unprecedented, given the strong labor market, say economists. “When you have job growth at the level we’ve seen it, that’s simply not something we’ve seen ever before when we get a recession,” says Brad McMillan, chief investment officer at Commonwealth Financial Network. “So …if we get a recession that looks anything like what we’ve seen in previous history, we have to see job growth go down.” Bledi Taska, chief economist at Lightcast, advises: “That doesn’t mean that we’re not going to have a slowdown of the economy, it doesn’t mean that there’s still not a possibility of that some of that happening in 2023 — the situation in Ukraine is definitely the big elephant in the room — and we still have a winter to come. But at this moment, at least, and for probably the remainder of the year, I’m not super worried.”

It’s too early to declare recession risk over, writes Mohamed El-Erian, president of Queens’ College, Cambridge, and an adviser to Allianz and Gramercy. “My discomfort relates to the view that the recent jobs report implies that the US will now avoid a recession, a view that several analysts have embraced and which is reflected in prices for stocks and corporate bonds. While I very much hope this view is correct, I believe it is too early to declare the recession watch over, something that the government bond market seems more attuned to.”

US consumer housing sentiment is suffering from rising mortgage rates, reports Fannie Mae. “The HPSI has declined steadily for much of the year, as higher mortgage rates continue to take a toll on housing affordability,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Unfavorable mortgage rates have been increasingly cited by consumers as a top reason behind the growing perception that it’s a bad time to buy, as well as sell, a home. Additionally, consumers appear to be indicating that selling conditions are softening, as the ‘Good Time to Sell’ component has declined meaningfully over the past two months, and, on net, fewer consumers expect home prices to go up. With home price growth slowing, and projected to slow further, we believe consumer reaction to current housing conditions is likely to be increasingly mixed.”