Daily Commentary

MarketMinder’s View: This is a pretty sober look at the question of when Americans will spend through lockdown-and-stimulus-built excess savings (versus those that would have accumulated at prepandemic savings rates) and what it all means for consumption, noting considerable uncertainty in estimates of the timing. While the San Francisco Fed notes the build-up will normalize this quarter, other estimates say that is too early: “Goldman Sachs, for example, calculates that as of July there were $1.3 trillion in excess savings, an amount equal to about 5% of gross domestic product. That seems like a lot of dry powder for consumers … The Federal Reserve, meanwhile, has alternative measures of savings, based on changes in household assets and liabilities from banks and other sources. In particular, these show that savings deposits and other cash equivalents on household balance sheets came to $16.8 trillion in the second quarter, down from a first-quarter 2022 high of $17.5 trillion, but still up from the fourth-quarter 2019 level of $12.7 trillion. Even after adjusting for inflation, that appears somewhat elevated relative to the pace of savings gains before the pandemic.” And there are revisions and distribution effects to consider, too. Regardless, given rising disposable income, relatively low consumer credit distress and strong employment data, there is little sign even running through the cushion would be so meaningful for spending and growth.

MarketMinder’s View: This summarizes three US economic data releases: September consumer confidence, August new home sales and July home price growth. We won’t deal with the third very much, given it is so old, but house prices rose 4.6% y/y in July after a 3.2% June climb, which continues to show the influence of tight inventory due to Fed rate hikes’ driving up mortgage costs to north of 7%. That last point is bandied about here quite a bit as underpinning August’s -8.7% m/m drop in new home sales, and perhaps it plays a role. However, there is perspective lacking in the analysis of this volatile data point, as new home sales are up 5.8% on a year-over-year basis and the 675,000 seasonally adjusted annual rate reflects a marked improvement from July 2022’s low of 543,000—an uptrend that came alongside higher mortgage rates. Moreover, 675,000 is above every single monthly read for the decade from October 2007 to October 2017. So how weak are sales, really? It looks more like they are normalizing versus the post-lockdown explosion. Finally, consumer confidence tumbled in September, hitting the second-lowest point this year behind only May. We take sentiment gauges like this with a grain of salt, but that suggests to us ongoing growth—and normalization in indicators like new home sales—is pretty underrated, a bullish backdrop for stocks.

MarketMinder’s View: With a potential government shutdown set to start at 12:01 AM Sunday, chatter over the effects is everywhere and, predictably, credit raters have decided to pile on. In this case, it is Moody’s, which said a shutdown could precipitate a downgrade of the US’s last AAA-debt rating, despite the fact that—as the rater acknowledges—“‘If it is short-lived, it would have minimal effect on the broader economy and our GDP growth forecasts.’” But, as with S&P in 2011 and Fitch last month, the rater notes that, “‘While government debt service payments would not be impacted and a short-lived shutdown would be unlikely to disrupt the economy, it would underscore the weakness of US institutional and governance strength relative to other AAA-rated sovereigns that we have highlighted in recent years. … In particular, it would demonstrate the significant constraints that intensifying political polarization put on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability.’” So here we have another example of a ratings agency acting on widely known information in what looks tantamount to groupthink. Nothing in this analysis should come as a surprise to anyone. And we strongly doubt a ratings agency downgrade on a shutdown, should those factors materialize, would be meaningful for markets whatsoever. As for the shutdown itself? You can read our views here.