Navigating Through The Clouds To A Soft Landing
The Ever-Present “But”
The life of a monetary policymaker is not an easy one, especially so for Federal Reserve Board chairman Jay Powell, who claims to be data dependent. The American economy, as measured by GDP, grew at an annual rate of 2.1 per cent in the second quarter, rather than at the 2.4 per cent rate originally estimated by the government, but it now seems to be accelerating. Incomes are down, but spending is up. The housing market is cooling in response to 7+ per cent mortgage rates, but construction spending increased in August for the seventh consecutive month. The Conference Board’s estimate of consumer confidence fell significantly in August, the index of consumers’ expectations of business conditions dropped, 69 per cent of respondents are expecting a recession within the year, but many are nevertheless planning more overseas vacations than in the recent past, and finding costly ways to entertain themselves. By reducing their savings rate in July to 3.5 per cent from 4.3 per cent in June, about half the 2019 pre-pandemic average of 8.8 per cent, they were able to spend top dollar on Barbie ($155 million on opening weekend, about $11 million per day since then), and Taylor Swift’s Renaissance tour (headed toward a $1 billion take). Economists at the Federal Reserve Bank of San Fransico estimate that this is the quarter in which US households will exhaust excess savings accumulated during the pandemic.