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Commentary: Accelerating Economic Slowdown Likely
In an economic commentary by John Beuerlein, chief economist at the Pohlad Companies (Northmarq’s parent company), data released in August 2023 demonstrated that economic activity is “holding up better than expected,” especially in light of “ongoing tightening credit conditions.” But in examining the broader context and metrics, Beuerlein indicated signs of an economic slowdown.
On the positive side, the Federal Reserve’s 18-month effort to slow inflation seems to bear fruit. The CPI for July reported a 0.2% month-over-month increase, bringing the year-over-year CPI to 3.2%. Meanwhile, the year-over-year Core CPI is 4.7%.
But Beuerlein pointed to these signs of a potential economic slowdown:
Declining GDP
The second reading of the Q2 2023 GDP ended at a 2.1% annualized rate versus the 2.4% from the first reading. First-quarter GDP was at 2.0%. Meanwhile, adjusted pretax corporate profits fell 0.4% during the same period, down 6.5% from the year before.
Slowing Consumer Spending
Higher prices put the brakes on consumer spending in Q2 2023, slowing to a 1.7% annual rate. This was down from 4.2% during Q1. While real consumer spending did increase by 0.6% in July, real disposable personal incomes declined by 0.2%. This caused “consumers to pull down their savings rate to an eight-month low of 3.5% from 4.3% in June,” Beuerlein wrote. The pre-COVID savings rate stood at 9%.
Eroding Credit Quality
Beuerlein, in quoting data from the New York Fed, wrote that credit card balances continue to rise. The delinquency rate for 30-days past due is at its highest since Q2 2020. Meanwhile, the 60-day past-due delinquency rate is rising and is at its highest since Q4 2019. The credit card non-payment rate is at its highest in over ten years. “Consequently, bankers set aside $21.5 billion of loan loss reserves during second quarter 2023, which is the third highest amount in the past decade,” according to Beuerlein.
Regional Bank Rating Cut
Moody’s cut the ratings on U.S. regional banks in August 2023 because of rising funding costs and commercial real estate loan exposures. Banks’ funding costs increase as depositors move their money into higher interest-bearing accounts. Meanwhile, despot declines and the decline in securities value is impacting banks’ liquidity. Said Beuerlein: “Bank credit . . . is now contracting on a year-over-year basis – not a positive development for a credit-driven economy.”
- ◦Financing
- ◦Economy
- ◦Policy/Gov't
