All Things in Moderation

Vital Statistics:

Stocks are higher this morning after strong numbers out of market darling Nvidia. Bonds and MBS are down small.

The Jackson Hole summit begins today, and the focus will be Jerome Powell’s speech tomorrow. “As we await Fed Chair Powell’s speech at Jackson Hole tomorrow, this challenge means that central bankers have a much harder time relative to last year,” Deutsche Bank’s Henry Allen said. “Bear in mind that a year ago, CPI inflation in both the US and the Euro Area was still running above 8%, so the way forward was pretty clear for policymakers. But now inflation has fallen by some distance, there’s much more doubt about how sticky it will end up proving, and thus how much more central bankers still need to do.”

The S&P Flash PMI showed the economy decelerating from July. This stands in stark contrast to the Atlanta Fed’s GDP Now forecast of 5.8% GDP growth in Q3. Does the chart below look like we are getting 5.8% GDP growth in Q3? I’m not seeing it.

The manufacturing economy remains in contraction and the service sector is barely expanding.

“A near-stalling of business activity in August raises doubts over the strength of US economic growth in the third quarter. The survey shows that the service sector led acceleration of growth in the second quarter has faded, accompanied by a further fall in factory output.

“Companies report that demand is looking increasingly lethargic in the face of high prices and rising interest rates. A resultant fall in new orders received by firms in August could tip output into contraction in September as firms adjust operating capacity in line with the deteriorating demand environment. Hiring could likewise soon turn into job shedding in the coming months after a near-stagnation of employment in August.

“Rising wage pressures as well as increased energy prices have meanwhile pushed input cost inflation higher, which will raise concerns over the stickiness of consumer price inflation in the months ahead. One upside is that weak demand is starting to limit pricing power, which should help keep a lid on inflation around the 3% mark.”

The 5.8% GDP forecast makes zero sense, especially when you take into account all the tightening that has already occurred.

In other economic news, initial jobless claims fell to 230k, while durable goods orders fell 0.5%. The Chicago Fed National Activity Index showed growth accelerated in July after decelerating in June.

The national delinquency rate inched up 9 basis points to 3.21%, according to Black Knight. Loans in foreclosure fell to 220k, the lowest since the end of the foreclosure moratorium.

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