We have come a long way since yield curve inversions a few months ago, as the Q3 numbers were put out a few weeks ago now make the picture clear, the US economy slowdown continues.

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The FED has been pumping Billions into the overnight Repo markets for weeks, in an attempt to keep these markets afloat and ward off recession fears from the general public. This was originally a short term daily thing, then they extended to Mid October, then Nov. 4th, now the new timeline is through at least January 2020. You can read the most recent FOMC FAQ here. You can track the NY Fed Repo stimulus here.

Here is a quick look at what Rabobank forecasts with FOMC aka rate cuts through 2020.

FEDs view of US Economy

Also if you want to read through the Beige Book reports just released Oct. 16th, by all FED branches/districts you can do that here. Its quite long and essentially breaks down the entire US economy through the FEDs eyes and what they see. Here is their overall view…

The U.S. economy expanded at a slight to modest pace since the prior report as business activity varied across the country. Reports from Districts representing states in the southern and western U.S. generally were more upbeat than Districts representing the Midwest and Great Plains. Household spending was solid on balance: nonauto retail sales increased modestly, while light vehicle sales were generally robust. Tourism and travel-related spending was up modestly. Housing market conditions changed little. On the business spending side, nonresidential construction increased at a slightly slower yet still modest pace, while leasing activity advanced at a slow but steady rate. Manufacturing activity continued to edge lower. Contacts in some Districts suggested that persistent trade tensions and slower global growth weighed on activity. The early impact of a recent auto strike was limited. Freight shipments stabilized after falling during the previous reporting period. Bankers in many Districts reported moderately rising loan volumes, while activity in nonfinancial services increased solidly. Agricultural conditions deteriorated further due to the ongoing impacts of adverse weather, weak commodity prices, and trade disruptions. Business contacts mostly expect the economic expansion to continue; however, many lowered their outlooks for growth in the coming 6 to 12 months.

IMF Viewpoint on Global Economy

This last week was a pretty big week for the IMF as the Global Financial Stability report and the World Economic Outlook report were both published. The new IMF head, Kristalina Georgieva, sees “serious risk” the slowdown will spread and its likely today the IMF will cut its 2019 global growth forecast from 3.2%, which is already the weakest since 2009.

“In 2019, we expect slower growth in nearly 90 percent of the world. The global economy is now in a synchronized slowdown. This means that growth this year will fall to its lowest rate since the beginning of the decade,” Georgieva said.

“After slowing sharply in the last three quarters of 2018, the pace of global economic activity remains weak.” World Economic Outlook report

Next we have the new IMF Global Financial Stability report for October that the IMF released this week as it hosts its annual meetings in Washington this week. This report doesn’t just focus on the US but there are some key takeaways here that is related to the whole global economy right now. They Identified the key vulnerabilities as..

This is mostly caused by the large interest rate declines we have seen now in over 70% of the economies the IMF monitors. When you cut rates like this money is cheap and funds tend to take more risks to make larger profit margins, it starts to fall apart when the chickens come home to roost. There is also about $15 Trillion now in negative yields globally. You can read the rest here if you like.

US Consumers & Housing

I want to cover housing as not much has changed here outside of the previous data we shared from ATTOM indicating US House flipping returns hit 8 yr low. If you want to read more about the global housing slowdown, we wrote about that this week.

If the current trend continues on a similar path to what we say in 2008 (as highlighted below) the US housing market will start to fall apart as soon as Q1 2020, right in time for elections.

Here is quick update on store closures…

It would appear as though consumer sentiment might be starting to shift, even though bank CEOs like Jamie Dimon have stated “consumers are fine right now”. Dimon had also mentioned “Of course there’s a recession ahead, What we don’t know is if it’s going to happen soon.” These statements were made this week as JP Morgan announced its Q3 earnings.

More bad news…

The more things tighten up, the more pressure it puts on trade deals and GDP for next quarter, because any drop could signal panic in conditions like these.


Sources:

https://www.reuters.com/article/us-usa-fed-banks/fed-eases-post-crisis-rules-for-domestic-foreign-banks-idUSKBN1WP2OU
https://www.bnnbloomberg.ca/u-s-consumer-credit-tops-forecast-on-non-revolving-debt-surge-1.1327814
https://www.cfr.org/blog/housing-market-points-recession-election-day
https://www.dailymail.co.uk/news/article-7530589/Someone-really-charging-people-1-100-live-shed.html