What Condition Our Economic Condition Is In

Brian joins Chris and Jeff to talk about the current condition of the economy. The Federal Reserve made a decision to raise rates by a quarter point last week. Some question if it was necessary and that prior rate hikes need time to filter through the economy.

The CPI (Consumer Price Index) rate is at 3%. Core CPI is a little higher but coming down significantly – when housing is factored we could be looking at a CPI rate of under 2% if there are no big surprises.

Recession is less of a risk now then had been – the question now is when and how will it come? We have been in a low growth economy for a while now. From GDP growth of 7-9% in 2021, to 2nd quarter 2023 supposed to be at a reasonable growth at of 1-1/2-2%. With labor tight and credit contracting, we could be one step away from a recession if we experience some significant event or blow up in a sector. Recession is not guaranteed, but we shouldn’t be complacent.

There is still an issue with the profitability of regional banks. Banks borrowed short with deposit growth and lent at higher rates, then deposit growth transferred to higher earning assets. Regional banks are not as diversified as the larger banks – they don’t have investment banking or asset management fee-generating businesses.

With tighter credit some may be turning to home equity and credit cards. Consumer debt recently reached a record high level. Credit default has not been a problem, but there is a possibility of risk if the economy slows down.

Next week is peak week– where over 50% of S&P 500 companies have reported earnings. Thus far, earnings have been good. No doubt, we have had slowdown in the economy, but the economy is not contracting either. 

Recorded July 27, 2023.