U.S. industrial production declined in September and has slipped below its pre-pandemic level, pushing the nation back into slow-growth mode and—when paired with sinking GDP projections—reigniting talk of stagflation. Persistent labor disruptions would certainly be another drag on growth to contend with, but just how closely are we currently mirroring ‘70’s-style stagflation conditions? Mortgage rates have climbed back above 3%, creating yet more obstacles to home affordability, even as real estate giant Zillow plans to pause its own purchases—and house-flipping business line—through the end of the year. Though the S&P 500 climbed on a strong showing from banks to kick off earnings season, we think it’s worth a look at some hidden tensions as the index declines from the top of its long-term trend channel. And is the simultaneous rally in commodities and the USD sustainable? Likely not, but which will blink first? Finally, as GDP growth falls short of expectations in China at 4.9%, extreme leverage and debt is driving concerns about economic stability.
1. We’ve heard about hurricane Ida, chip, worker, and other shortages. Whatever the reasons, the U.S. is back in slow-growth mode, currently lower than pre-Covid levels:
Source: The Daily Shot, from 10/19/21
2. It looks like the street’s economists are beginning to recognize the moderation in growth:
Source: The Daily Shot, from 10/18/21
3. We agree, it is not stagflation…yet. It took years to unfold in the 1970’s, and letting short-term news and thinking rule may be a mistake:
Source: Oxford Economics & Haver Analytics, from 10/15/21
4. The labor shortages are permeating throughout the economy. Perhaps the long layoff has readjusted our psyche in that people want to earn more before they go back to work. Here is the construction industry:
Source: The Daily Shot, from 10/19/21
5. With mortgage rates back above 3% and housing prices continuing to accelerate, affordability is dropping fast:
Source: The Daily Shot, from 10/15/21
6. The recent market pullback did not show the full extent of the underlying battles between growth and value, large versus small, etc.:
Source: Bloomberg, from 10/18/21
7. Where are the markets from an intermediate-time perspective?
Source: Deutsche Bank Research, from 10/19/21
8. If this is not an energy shock, then what is? Natural gas has seen similar increases, and oil has surged this year:
Source: The Daily Shot, from 10/15/21
9. Why the chip shortage is affecting car manufacturing:
Source: The Daily Shot, from 10/18/21
10. Since commodities are priced in USD, they should have an inverse relationship. We live in strange times as the world markets continue to normalize. Where is the new normal?
Source: The Daily Shot, from 10/18/21
11. European PPI is much higher than CPI. Either margins will take a hit, prices will be passed through, or both:
Source: The Daily Shot, from 10/19/21
12. And slowing growth is not just a U.S. phenomenon:
Source: The Daily Shot, from 10/18/21
13. About 75% of the Chinese real estate loans have been outside the banking system:
Source: China Beige Book, from 10/19/21
14. The official word From China is that their credit bubble is manageable. History may prove them wrong:
Source: TS Lombard, from 10/19/21