By: ADMIN |
2023-03-10 00:14:50
The US Gross domestic product increased at a 2.6% annualized rate last quarter after contracting at a 0.6% pace in the second quarter. A Reuters poll had predicted 2.4% growth. But this growth is masking some very disturbing trends. Here go the figures.
The US Institute for Supply Management's index slipped to 54.4 in October from 56.7 in September. This figure was 66.7 a year ago. The US Real-final-sales-to-private-domestic-purchasers (FSPDP) increased at an annualised rate of just 0.1% in the third quarter, down from 2.1% in the same period in 2021, and the slowest rate since 2009. The US Real-personal-incomes-less-transfer-payments (PILT) were up by less than 0.7% in the three months from July to September compared with the same period a year earlier. The increase in PILT was one of the lowest since 1980, confirming sluggish growth in consumer incomes after allowing for inflation. The most disturbing is the US GDP growth itself. The key to this growth was the exceptionally low trade-gap. Exports were higher and imports lower. The imports fell because the demand is falling, which is the first sign of the US economy entering a recession.
US housing demand is already down by 50%. The entire US Construction sector added only 1,000 new jobs in October. The elephant in the room is the mortgage rate. The 30-year fixed-rate mortgage rose by 22 basis points to 7.16%, while the mortgage loan application volume fell 1.7% from a month earlier. US Mortgage application activity is at its slowest pace since 1997.
These facts are not lost on other central banks, who are clearly approaching some kind of turn. What might have been regarded as isolated signals are getting harder to ignore. The Reserve Bank of Australia raised rates by only a quarter point last month and the Monetary Authority of Singapore tightened much less than was forecast. Then, on Wednesday, the Bank of Canada pushed its main rate higher by just half a percentage point rather than the anticipated three-quarter step. Tiff Macklem, governor of the Bank of Canada, went further in his press conference: “This tightening phase will draw to a claseo. We are getting closer, but we aren’t there yet.”
Due to the past mistakes of US Fed, inflation is stubbornly high. Fed has to keep raising rates. Interest rate traders anticipate the target of 5.00-5.25% by the middle of 2023, and stay above 4.00% throughout the rest of 2023 and 2024 as the US Fed tries to wring excess inflation out of the economy. The Fed is inducing a hard landing to control inflation, the cost will be a deep recession.
