Economic Update - 2Q24
In this update, we present charts and data from key areas of the US economy: the Consumer, the Employment Situation, the Housing Market, and Consumer Sentiment.
In Summary:
- The US economy is still growing (positive GDP) but growth has slowed and signs of weakness are apparent. This should not be a surprise: the Federal Reserve raised interest rates by about 5.5% between Spring of 2022 and Summer of 2023 in an attempt to slow the economy to reduce inflation.
- The US Consumer remains resilient but low savings rates and rising credit card delinquencies bear watching for a potential pullback in consumer spending.
- The Employment situation has been strong coming out of the Pandemic but most recent employment data points to a negative trend.
- The Housing market has felt the affects of higher interest rates most accutely: pending home sales are near record lows and mortgage rates are high.
- Subjective measures of Consumer Sentiment have improved since the lows of 2022 but remain well below average. Sentiment is particularly poor in the housing market with a record low number of people feeling that this is a good time to buy a house.
GDP
First quarter US Real GDP figures (released in the second quarter) came in at a 1.4% annual growth rate. This is down from a 3.4% growth rate in the fourth quarter and a 4.9% rate before that. The growth slowdown was driven by a pullback in consumer spending, fewer exports, and less federal, state, and local government spending compared to the prior quarter.
Consumer
Inflation-adjusted weekly earnings advanced modestly but have been below the 10 year average for 10 of the last 12 months.
Inflation-adjusted consumer spending remains positive but it will be important to watch for signs of decelerating consumer spending for its impact on US growth (see our blog for why consumer spending matters so much).
Personal Savings ticked up a bit in the quarter but remains well below the 10 year average and the pre-pandemic level. This has led more consumers to buy on credit. About 1 in 10 credit card holders face delinquency, which is significantly above the pre-pandemic average.
Employment
The job market has been strong coming out of the pandemic but a few trends have emerged which point to weakening in the labor market so these are worth paying attention to:
- The traditional unemployment rate (U3 unemployment) came in at 4.1% in June vs 3.7% at the end of 2023. This remains low historically but has increased. The underemployment rate (U6 unemployment) has also steadily risen.
- The unemployment rate recently moved above its 36 month moving average which has historically been a recession indicator. It is possible that this time is different, but this measure has consistently preceded recessions.
- The initial claims for unemployment insurance have started moving up in recent months which will continue to feed into a higher unemployment rate if that trend continues.
- And finally, the number of unemployed people has risen fairly dramatically with about 1.1 million more people unemployed since the beginning of 2023.
Housing
The housing market remains beleaguered, mostly due to interest rate and supply dynamics.
For a time, sales of new homes held up better than sales of existing homes but that market has stalled as well. Growth in existing home sales has remained in negative territory for about three years. Overall, the housing market appears nearly frozen as the index of pending home sales in the US is near the lowest level in the index’s history.
Home prices are still rising but at a much slower rate than the Covid-era (blue line), partially due to higher mortgage rates (orange line).
Sentiment
Finally, Consumer Sentiment - as measured by the University of Michigan - has risen from the 2022 lows when inflation peaked but remains well below average.
Perhaps the area where Americans feel least optimistic is in their ability to buy a house (as we referenced above). According to a June Gallup Poll, the number of respondents who believe this is a good time to buy a house is at a record low.
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