Global Market Commentary: Third Quarter 2022

Markets Have Awful Third Quarter

Global equity markets had an awful third quarter, and when the final Wall Street bell weakly tolled on Friday, September 30th, all major global equity markets were in the red, leading to overall market declines not seen in decades.

Further, entering the fourth quarter of 2022, the DJIA and S&P 500 are both at their lowest since November 2020, while NASDAQ is at its lowest since the end of July 2020.

For the third quarter of 2022:

• The DJIA dropped 6.7%;

• The S&P 500 lost 5.3%;

• NASDAQ lost 4.1%; and

• The Russell 2000 declined by 3.6%.

The themes that drove market performance in the third quarter were the same worries that drove markets in the first two quarters and toward the end of last year. And the two most dominant themes continue to be inflation and the Fed – with the former rising to 40-year highs and the latter causing Wall Street to worry that the course of rising rates would lead to a recession.

The other themes were at odds with one another at times: rising consumer and investor confidence; rising food and gas prices, negative GDP numbers, a cooling-off of the housing market, better than expected manufacturing data; not-so-great corporate earnings, continued supply-chain bottlenecks and more social unrest.

Further, we saw that:

• Volatility, as measured by the VIX, trended up this quarter, beginning the quarter under 27 and ending the month over 31, although there was a dip in the middle of the quarter.

• West Texas Intermediate crude trended down for the quarter, starting at just over $105/barrel and ending the quarter at just under $80, slightly higher than where it stood one year ago.

Market Performance Around the World

Investors were unhappy with the quarterly performance worldwide, as all 36 developed markets tracked by MSCI were negative for the third quarter of 2022 – with most recording negative returns in the double digits. And for the 40 developing markets tracked by MSCI, 38 of them were negative too, with only the EM Latin America and EFM Latin America and Caribbean Index both gaining about 1%.

Source: MSCI. Past performance cannot guarantee future results

Sector Performance Rotated in Q22022

The overall trend for sector performance for the third quarter was ugly, as 10 of the 11 S&P 500 sectors dropped, with only Consumer Discretionary staying positive. And as if those numbers weren’t bad enough, the performance leaders and laggards rotated throughout the quarter, and the ranges were substantial.

Here are the sector returns for the second and third quarters of 2022:

Source: FMR

Reviewing the sector returns for just the third quarter of 2022 and the first nine months of the year, we saw that:

• Almost all sectors were painted red for the third quarter, with only the Consumer Discretionary sector painted green;

• 2 of the 11 sectors saw double-digit declines in the third quarter, whereas 7 recorded a double-digit decline in Q2;

• The interest-rate sensitive sectors (Information Technology, Financials, and Real Estate specifically) struggled as the Fed raised rates; and

• The differences between the best (+4%) performing and worst (-13%) performing sectors in the third quarter were big.

GDP Down in 2nd Quarter

The Bureau of Economic Analysis released its third estimate of 2nd quarter's GDP and announced that it decreased at an annual rate of 0.6%, following a decrease of 1.6% in the first quarter. This third estimate was the same as was announced in the second estimate in August.

• The smaller decrease in the second quarter, compared to the first quarter, reflected an upturn in exports and an acceleration in consumer spending.

• Profits increased 4.6% at a quarterly rate in the second quarter after increasing 0.1% in the first quarter.

• Private goods-producing industries decreased by 10.4%, private services-producing industries increased by 2.0%, and government decreased by 0.2%.

• Overall, 9 of 22 industry groups contributed to the second-quarter decline in real GDP.

Housing Was Mixed

On September 20th, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced the following new residential construction statistics for August 2022:

Building Permits

• Privately‐owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,517,000.

• This is 10.0% below the revised July rate of 1,685,000 and 14.4% below the August 2021 rate of 1,772,000.

• Single‐family authorizations in August were at a rate of 899,000; this is 3.5% below the revised July figure of 932,000.

• Authorizations of units in buildings with five units or more were at a rate of 571,000 in August.

Housing Starts

• Privately‐owned housing starts in August were at a seasonally adjusted annual rate of 1,575,000.

• This is 12.2% above the revised July estimate of 1,404,000 but is 0.1% below the August 2021 rate of 1,576,000.

• Single‐family housing starts in August were at a rate of 935,000; this is 3.4% above the revised July figure of 904,000.

• The August rate for units in buildings with five units or more was 621,000.

Housing Completions

• Privately‐owned housing completions in August were at a seasonally adjusted annual rate of 1,342,000.

• This is 5.4% below the revised July estimate of 1,419,000 but is 3.1% above the August 2021 rate of 1,302,000.

• Single‐family housing completions in August were at a rate of 1,017,000; this is 0.4% above the revised July rate of 1,013,000.

• The August rate for units in buildings with five units or more was 318,000.

Mortgage Rates Jump

According to data compiled by Bankrate on the last day of the quarter:

• 30-year fixed rate: 6.83%

• 15-year fixed rate: 6.00%

• 5/1 ARM rate: 5.22%

• 30-year fixed jumbo fixed rate: 6.81%

Producer Price Index Drops

The Producer Price Index for final demand fell 0.1% in August, seasonally adjusted, the U.S. Bureau of Labor Statistics reported. Final demand prices decreased by 0.4% in July and advanced by 1.0% in June.

On an unadjusted basis, the index for final demand moved up 8.7% for the 12 months that ended in August.

In August, the decrease in the index for final demand is attributable to a 1.2% decline in prices for final demand goods. In contrast, the index for final demand services advanced by 0.4%.

• Prices for final demand fewer foods, energy, and trade services moved up 0.2% in August following a 0.1% rise in July.

• For the 12 months that ended in August, the index for final demand for fewer foods, energy, and trade services increased by 5.6%.

Final Demand

Final demand goods: The index for final demand goods fell 1.2% in August after declining 1.7% in July. The August decrease can be traced to a 6.0% price drop for final demand energy. Conversely, the index for final demand goods, fewer foods, and energy rose 0.2%, while prices for final demand foods were unchanged.

Product detail: In August, over three-quarters of the decrease in prices for final demand goods is attributable to the index for gasoline, which fell 12.7%.

Prices for diesel fuel, jet fuel, chicken eggs, primary basic organic chemicals, and home heating oil also declined. In contrast, the index for construction machinery and equipment increased by 2.6%. Prices for beverages and beverage materials and for electric power also rose.

Final demand services: The index for final demand services increased by 0.4% in August, the fourth consecutive rise. Sixty% of the August advance can be traced to a 0.8%increase in margins for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and retailers.) Prices for final demand services, less trade, transportation, and warehousing, also moved higher, rising 0.3%. Conversely, the index for final demand transportation and warehousing services decreased by 0.2%.

Product detail: Forty percent of the price increase for final demand services can be attributed to margins for fuels and lubricants retailing, which rose 14.2%. The indexes for securities brokerage, dealing, investment advice, and related services; loan services (partial); transportation of passengers (partial); portfolio management; and chemicals and allied products wholesaling also increased. In contrast, prices for truck transportation of freight decreased by 1.9%. The indexes for guestroom rental and for food and alcohol retailing also fell.

Leading Indicators Drop

The Conference Board Leading Economic Index for the U.S. decreased by 0.3% in August 2022 to 116.2 (2016=100) after declining by 0.5% in July. The LEI fell 2.7% over the six-month period between February and August 2022, a reversal from its 1.7% growth over the previous six months.

From the Conference Board release:

“The US LEI declined for a sixth consecutive month, potentially signaling a recession. Among the index’s components, only initial unemployment claims and the yield spread contributed positively over the last six months—and the contribution of the yield spread has narrowed recently.

“Furthermore, labor market strength is expected to continue moderating in the months ahead. Indeed, the average workweek in manufacturing contracted in four of the last six months—a notable sign, as firms reduce hours before reducing their workforce. Economic activity will continue slowing more broadly throughout the US economy and is likely to contract. A major driver of this slowdown has been the Federal Reserve’s rapid tightening of monetary policy to counter inflationary pressures. The Conference Board projects a recession in the coming quarters.”

Further:

• The Conference Board Coincident Economic Index for the U.S. increased by 0.1%in August 2022 to 108.7 (2016=100), after increasing by 0.5% in July.

• The CEI rose by 0.6% over the six-month period from February to August 2022, slower than its growth of 1.5% over the previous six-month period.

• The Conference Board Lagging Economic Index for the U.S. increased by 0.7% in August 2022 to 115.4

Consumer Confidence Up

The Conference Board’s Consumer Confidence Index increased in September for the second consecutive month. The Index now stands at 108.0 (1985=100), up from 103.6 in August.

• The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – rose to 149.6 from 145.3 last month.

• The Expectations Index – based on consumers’ short-term outlook for income, business, and labor market conditions – increased to 80.3 from 75.8.

Present Situation

Consumers’ appraisal of current business conditions was more favorable in September.

• 20.8% of consumers said business conditions were “good,” up from 19.0%.

• 21.2% of consumers said business conditions were “bad,” down from 22.6%.

Consumers’ assessment of the labor market improved.

• 49.4% of consumers said jobs were “plentiful,” up from 47.6%.

• 11.4% of consumers said jobs were “hard to get,” down slightly from 11.6%.

Expectations Six Months Hence

Consumers were more positive about the short-term business conditions outlook in September.

• 19.3% of consumers expect business conditions to improve, up from 17.3%.

• 21.0% expect business conditions to worsen, down from 21.7%.

Consumers were more optimistic about the short-term labor market outlook.

• 17.5% of consumers expect more jobs to be available, up from 17.1%.

• 17.7% anticipate fewer jobs, down from 19.6%.

Consumers were mixed about their short-term financial prospects.

• 18.4% of consumers expect their incomes to increase, up from 16.6%.

• Conversely, 14.3% expect their incomes will decrease, up from 13.9%.

Investor Consumer Rises

“The Global Investor Confidence Index increased to 108.8, up 1.5 points from August’s revised reading of 107.3. The increase was led by a 7.7-point jump in Asian ICI to 100.1. North American ICI rose as well, up 2.4 points to 109. European ICI, meanwhile, fell 5.5 points to 100.1.”

The release further stated:

“Despite heightened equity market volatility experienced globally, risk sentiment expressed by institutional investors remained steady in September as the Global ICI rose slightly to 108.8. As anticipated, European investors were rattled by a continued energy crisis, diminishing growth prospects, and hawkish global central banks; as a result, the EMEA ICI tumbled 5.9 points. Going forward, it will be important to monitor whether the dip in European investor confidence persists, given the market’s negative reaction to the UK’s recent fiscal plans. Overall, the increase in the September Global ICI can be largely attributed to Asia-Pacific investors as risk appetite grew in tandem with the reopening of borders and easing of restrictions in Macau and Chengdu, China.”

Consumer Sentiment

“Consumer sentiment confirmed the preliminary reading earlier this month and was essentially unchanged from the month prior, at less than one index point above August. Buying conditions for durables and the one-year economic outlook continued lifting from the extremely low readings earlier in the summer, but these gains were largely offset by modest declines in the long run outlook for business conditions. As seen in the chart, sentiment for consumers across the income distribution has declined in a remarkably close fashion for the last 6 months, reflecting shared concerns over the impact of inflation, even among higher-income consumers who have historically generated the lion's share of spending.”

The median expected year-ahead inflation rate declined to 4.7%, the lowest reading since last September. At 2.7%, median long run inflation expectations fell below the 2.9-3.1% range for the first time since July 2021. Inflation expectations are likely to remain relatively unstable in the months ahead, as consumer uncertainty over these expectations remained high and is unlikely to wane in the face of continued global pressures on inflation.

Compensation Up

Compensation costs for civilian workers increased 1.3%, seasonally adjusted, for the 3-month period ending in June 2022, the U.S. Bureau of Labor Statistics reported.

• Wages and salaries increased 1.4% and benefit costs increased 1.2% from March 2022.

• Compensation costs for civilian workers increased 5.1% for the 12-month period ending in June 2022 and increased 2.9% in June 2021.

• Wages and salaries increased 5.3% for the 12-month period ending in June 2022 and increased 3.2% for the 12-month period ending in June 2021.

• Benefit costs increased 4.8% over the year and increased 2.2% for the 12-month period ending in June 2021.

Sources: bls.gov; umich.edu; census.gov; msci.com; fidelity.com; nasdaq.com; wsj.com; morningstar.com

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Partnering with Outside The Box Financial Planning offers numerous benefits for individuals seeking retirement planning, small business support, wealth management, and beyond.  With their fiduciary duty, comprehensive approach, unbiased advice, transparent fee structure, and ongoing support, OTBFP act as a trusted advisor who prioritizes your best interests. Click here to schedule a complimentary “Fit” meeting to determine if we would make a good mutual fit.

Remember, financial decisions have long-lasting implications, and working with a professional can provide the expertise and guidance necessary to make informed choices that align with your financial aspirations. 

However, if you would like to take a shot at building a financial plan on your own, we offer our financial planning software, RightCapital, free of charge. Click here to get started.

If you've been reading or watching the news lately, you know a lot is happening in the financial world.

You've heard about changes in interest rates, rising inflation, and the potential of a looming recession.

If the headlines have caused you some anxiety, you’re not alone. We've all been through a lot, financially and personally, over the last couple of years. You may feel like any sense of certainty has gone out the window.

But we're here to reassure you. The best course of action during times of uncertainty is to stick to the financial plan you and your financial advisor have developed. Markets and circumstances will shift and change, but a well-developed financial plan will help you weather the storms. And if you haven’t crafted a financial plan yet, perhaps now is the time. 

Read on to find answers to your latest financial questions. 

What’s Happening in the Financial News?

Let's start by diving into what's happening in the financial news. In 2022, and in the last couple of years, the news has been full of dramatic headlines and financial uncertainty. But what is all this talk about the Federal Reserve raising interest rates and a tighter monetary policy? To understand, it's important to know what's been going on with inflation.

Inflation has been accelerating

In June of 2022, inflation rates jumped to 8.5%, the highest they've been since the 1980s. For some context, the Fed tries to maintain inflation at a rate of 2% over the long run.

Lately, you’ve likely experienced inflation at the gas pump or grocery store. You’re paying a lot more for these necessities than you were a year ago.

So, what is inflation? Inflation is a decrease in money's purchasing power, which results in higher prices for goods and services. 

Part of the reason inflation has been accelerating so quickly is due to widespread supply shortages in the wake of the pandemic. When supply goes down, demand goes up.

The real effects of accelerated inflation include a higher cost of living. We're paying more for gas, groceries, and rent than we were a year ago — roughly 8.5% more across the board. 

In response to rising inflation, the Federal Reserve increased interest rates

What, if anything, can be done to combat rising inflation? That's where the Federal Reserve comes in.

The Federal Open Market Committee (FOMC) makes decisions about open market operations on behalf of the Federal Reserve. Their main goals are to keep employment up, stabilize prices, and moderate long-term inflation rates. One of their main jobs is to control the supply of money in the US economy, which influences inflation rates.

When inflation is high, the FOMC tends to raise interest rates, which increases the cost of borrowing. The idea is to make borrowing less appealing, reducing the amount of money in circulation. This slows demand and therefore lowers prices.

 In June 2022, the FOMC voted to raise interest rates by 0.75%, or 75 basis points. And in July, the FOMC raised interest rates by another 75 basis points, for a total of 150 basis points so far this year.

This interest rate, also known as the Federal Funds Rate, is an important indicator of the economy. It's the rate at which banks charge each other to lend Fed funds overnight. It directly impacts consumer interest rates on mortgages, auto loans, and credit cards.

This is all part of a tighter monetary policy

Along with rising inflation and higher interest rates, you've probably been hearing the term “tighter monetary policy” being tossed around in the financial news.

A tighter monetary policy aims to slow down an “overheated” economy. An overheated economy is one experiencing high levels of inflation following a period of economic growth.

One way to cool an overheated economy is to slow inflation by raising interest rates. This makes borrowing less attractive — and more expensive. The result is a smaller amount of money circulating through the economy. 

Increasing the reserve requirement, the amount of money banks are required to have on hand, is another way of taking money out of circulation and increasing the cost of borrowing. 

On the other hand, a tighter monetary policy makes saving more attractive. This is because higher interest rates on savings accounts work in a savings account holder's favor. 

There’s talk of a recession

So, why all the fear in the news?

In response to the tighter monetary policy, stocks have been dropping, and there's a fear of a looming recession. Interest rates will likely continue to rise, making it more expensive for those applying for a mortgage, paying off debt, or getting a car loan. 

There are a few signs — like the fact that the economy shrank in early 2022, turbulence regarding political disruptions and the ongoing pandemic, and increased interest rates, that indicate the potential for a recession. But that doesn’t mean you should make any drastic decisions.

How You Should Respond to The Financial News

A lot of this news sounds scary. After living through 2008, the fear of a recession is real. But that doesn't mean you should panic. The truth is, no one knows exactly what's next. The economy is cyclical, and ebbs and flows are normal. The worst thing you can do is make knee-jerk reactions in response to what you hear in the news.

So, what should you do?

In general, less is more. If you've been working with a trusted financial advisor to balance a well-diversified portfolio as you approach retirement, you're on the right track. It's times like these when you have to sit tight and weather the storm.

If you’re managing your money without a professional’s perspective, this might be the time to get some trusted advice. If you’re feeling anxious or uncertain, a financial planner is a great person to consult.

Finally, you can make sure your emergency savings account is fully funded. As we mentioned earlier, one upside of higher interest rates is that your savings account benefits. 

Make sure your emergency savings are fully funded so you can be prepared in case of tough times. This means if something does happen and you need extra cash, you won’t have to dig into your hard-earned retirement funds. 

Work With a Financial Planner to Prepare For the Future

At Outside the Box Financial Planning, we take a personal approach to financial planning. When the financial news is unsettling, it can be tough to make level-headed decisions. Instead, you might be tempted to act on impulse.

The best thing you can do is have a trusted financial planner in your corner — one who’s ready to help you through whatever happens. We do more than manage your assets. We ease your concerns so you can feel financially secure and prepared.

To see if we can help you feel more secure in your financial future, click here to schedule a conversation today.

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Partnering with Outside The Box Financial Planning offers numerous benefits for individuals seeking retirement planning, small business support, wealth management, and beyond.  With their fiduciary duty, comprehensive approach, unbiased advice, transparent fee structure, and ongoing support, OTBFP act as a trusted advisor who prioritizes your best interests. Click here to schedule a complimentary “Fit” meeting to determine if we would make a good mutual fit.

Remember, financial decisions have long-lasting implications, and working with a professional can provide the expertise and guidance necessary to make informed choices that align with your financial aspirations. 

However, if you would like to take a shot at building a financial plan on your own, we offer our financial planning software, RightCapital, free of charge. Click here to get started.

Global Market Commentary: First Quarter 2022

Markets Have Terrible Second Quarter 

Global equity markets had an awful second quarter, and when the final Wall Street bell weakly tolled on June 30th, all major global equity markets were in the red, leading to overall market declines not seen in decades. 

To underscore how bad it has been so far in 2022, consider that the S&P 500 recorded its worst first six months in 52 years, and the DJIA recorded its worst first six months since 1962.

For the second quarter of 2022: 

• The DJIA dropped 11.2%;

• The S&P 500 lost 16.7%;

• NASDAQ plummeted 22.7%; and

• The Russell 2000 declined 18.4%.

The themes that drove market performance in the second quarter were the same worries that drove markets in the first quarter and towards the end of last year. And the two most dominant themes continue to be inflation and the Fed – with the former rising to 40-year highs and the latter causing Wall Street to worry that the course of rising rates would lead to a recession.

The other themes were plummeting consumer confidence, rising food and gas prices, negative GDP numbers, declining manufacturing, a cooling-off of the housing market, not-so-wonderful corporate earnings, continued supply-chain bottlenecks, and a lot of social unrest here at home.

Further, we saw that:

• Volatility, as measured by the VIX, trended up significantly this quarter, beginning around 19 and ending the month just south of 29.

• West Texas Intermediate crude trended up slightly for the quarter, starting at just under $100/barrel and ending at over $105. For perspective, WTI started 2022 at about $75/barrel.

Market Performance Around the World

Investors were unhappy with the quarterly performance around the world, as all 36 developed markets tracked by MSCI were negative for the second quarter of 2022 – and all of them saw negative returns in the double digits. And for the 40 developing markets tracked by MSCI, 39 of them were negative, with many losing more than a quarter of their value.

Source: MSCI. Past performance cannot guarantee future results

This Bear Seems Especially Angry

U.S. equity markets turned in a terrible second quarter to add to a not-so-great first quarter, pushing the major equity markets to levels not seen in a long time. And while many are suggesting that there is more pain to come from this bear, plenty of others suggest that the worst is behind us. But we of course, won’t know for sure for another six months.

For the YTD through the end of June:

• The DJIA is down 15.9%;

• The S&P 500 is down 21.0%;

• NASDAQ is down 30.3%; and

• The Russell 2000 is down 24.8%.

Sector Performance Rotated in Q22022

The overall trend for sector performance for the second quarter and the YTD was ugly, as all 11 S&P 500 sectors dropped for the second quarter, and only the Energy sector was positive YTD. As if those numbers weren’t bad enough, the performance leaders and laggards rotated throughout the quarter, and the ranges are substantial.

Here are the sector returns for the first two quarters of 2022:

Source: FMR

Reviewing the sector returns for just the second quarter of 2022 and the first six months of the year, we saw that:

• All sectors were painted red for the second quarter, and only the Energy sector is green YTD;

• 7 of the 11 sectors saw double-digit declines in the second quarter, and those same 7 saw double-digit declines YTD too;

• The defensive sectors (Utilities and Consumer Staples) turned in a relatively decent quarter and have held up relatively ok YTD;

• The interest-rate sensitive sectors (Information Technology and Financials specifically) struggled as the Fed raised rates; and

• The differences between the best (-5%) performing and worst (-29%) performing sectors in the first quarter were big.

The Fed, The Fed, The Fed

The Federal Reserve voted to increase the fed funds by an amount not seen in almost 30 years. From the Federal Reserve press release dated June 15, 2022:

“Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1.5% - 1.75% and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities, agency debt, and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that was issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.”

Like the previous hike earlier this year, this rate hike was one of the most predictable and predicted rate movements the markets have ever seen. However, the magnitude of the rate hike was not predicted.

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” said Fed Chair Jerome Powell. And Powell also said that decisions will be made “meeting by meeting.”

Interestingly, as of the day after the Fed’s historic announcement, Wall Street assigned a probability of more than 80% that the Fed would raise rates by another 75 basis points at their next meeting at the end of July. And that probability has held steady through the end of June too.

GDP Slumps

As the quarter wound down, the Bureau of Economic Analysis released its 3rd estimate of 1st quarter GDP and reported that real gross domestic product decreased at an annual rate of 1.6%. Analysis. In the fourth quarter of 2021, real GDP increased 6.9%.

This 3rd estimate was notable in that the 2nd estimate issued last month reported that GDP declined 1.5%.

U.S. Bureau of Economic Analysis. Seasonally adjusted at annual rates.

“The update primarily reflects a downward revision to personal consumption expenditures (PCE) that was partly offset by an upward revision to private inventory investment (refer to "Updates to GDP").

The decrease in real GDP reflected decreases in exports, federal government spending, private inventory investment, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. Nonresidential fixed investment, PCE, and residential fixed investment increased.”

Housing Cools Off

The National Association of Realtors announced that existing-home sales retreated for the fourth consecutive month in May. Month-over-month sales declined in three out of four major U.S. regions, while year-over-year sales slipped in all four regions.

From the release:

• Total existing-home sales (completed transactions that include single-family homes, townhomes, condominiums, and co-ops) fell 3.4% from April.

• Year-over-year sales receded by 8.6%.

"Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance. Also, the market movements of single-family and condominium sales are nearly equal, possibly implying that the preference towards suburban living over city life that had been present over the past two years is fading with a return to pre-pandemic conditions."

• Total housing inventory registered at the end of May increased by 12.6% from April but dropped 4.1% from the previous year.

• Unsold inventory sits at a 2.6-month supply at the current sales pace, up from 2.2 months in April and 2.5 months in May 2021.

"Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year. Nonetheless, homes priced appropriately are selling quickly, and inventory levels still need to rise substantially – almost doubling – to cool home price appreciation and provide more options for home buyers."

• The median existing-home price for all housing types in May was $407,600, up 14.8% from May 2021, as prices increased in all regions.

• This marks 123 consecutive months of year-over-year increases, the longest-running streak on record.

Further:

• Properties typically remained on the market for 16 days in May, down from 17 days in April and 17 days in May 2021.

• Eighty-eight percent of homes sold in May 2022 were on the market for less than a month.

The largest year-over-year median list price growth occurred in Miami (+45.9%), Nashville (+32.5%), and Orlando (+32.4%). Austin reported the highest growth in the share of homes that had their prices reduced compared to last year (+14.7 percentage points), followed by Las Vegas (+12.3 percentage points) and Phoenix (+11.6 percentage points).

Regional Breakdown

• Existing-home sales in the Northeast climbed 1.5% but fell 9.3% from May 2021. The median price in the Northeast was $409,700, a 6.7% rise from one year ago.

• Existing-home sales in the Midwest dropped 5.3% from the previous month and also fell 7.5% from May 2021. The median price in the Midwest was $294,500, up 9.5% from one year before.

• Existing-home sales in the South declined 2.8% in May and fell 8.4% from the previous year. The median price in the South was $375,000, a 20.6% jump from one year ago. For the 9th consecutive month, the South recorded the highest pace of price appreciation relative to the other three regions.

• Existing-home sales in the West slid 5.3% in May and dropped 10.0% from this time last year. The median price in the West was $633,800, an increase of 13.3% from May 2021.

Manufacturing Cools Off 

S&P Global reported that we saw “the weakest upturn in US private sector output since January’s Omicron-induced slowdown in June. The rise in activity was the second-softest since July 2020, with slower service sector output growth accompanied by the first contraction in manufacturing production in two years.

• The headline Flash US PMI Composite Output Index registered 51.2 in June, down from 53.6 in May. The decline in the index reading signaled further easing in the business activity expansion rate to a pace notably slower than March’s recent peak. Although service providers continued to indicate a rise in output, it was the weakest increase in five months.

• Manufacturers fared worse, with factory production slipping into decline as the respective seasonally adjusted index fell to a degree only exceeded twice in the 15-year history of the survey, at the height of the initial pandemic lockdowns in 2020 and the height of the global financial crisis in 2008.

• Weaker demand conditions, often linked to the rising cost of living and falling confidence, led to the first contraction in new orders since July 2020. Decreases in new sales for goods and services in June were the first recorded since May and July 2020, respectively.

• Similarly, new export orders contracted at the steepest pace since June 2020 as foreign customers paused or reduced new order placements due to inflation and supply chain disruptions.

• Inflationary pressures remained marked in June, as input costs and output charges rose substantially again. Although the pace of input price inflation eased to the slowest for five months, it was sharper than any seen before April 2021. Alongside food, fuel, transportation, and material price hikes, firms often mentioned that wages had increased to entice workers to stay, which added pressure to operating expenses.

• Finally, business confidence slumped to one of the greatest extents seen since comparable data were available in 2012, down to the lowest since September 2020. Manufacturers and service providers were far less upbeat regarding the outlook for output over the coming year than in May, principally amid inflationary concerns and the further impacts on customer spending as well as tightening financial conditions.

Consumer Sentiment Hits Record Low 

The University of Michigan’s Consumer Sentiment Index for June came in 14.4% below May for the lowest reading on record.

“Consumers across income, age, education, geographic region, political affiliation, stockholding, and homeownership status all posted large declines. About 79% of consumers expected bad times in the year ahead for business conditions, the highest since 2009. Inflation continued to be of paramount concern to consumers; 47% of consumers blamed inflation for eroding their living standards, just one point shy of the all-time high last reached during the Great Recession.”

Orders for Durable Goods Up 

Four days before the end of the quarter, the U.S. Census Bureau announced the May advance report on durable goods manufacturers’ shipments, inventories, and orders: 

New Orders

• New orders for manufactured durable goods in May increased by $1.9 billion or 0.7%.

• Up seven of the last eight months, this increase followed a 0.4% April increase.

• Excluding transportation, new orders increased by 0.7%.

• Excluding defense, new orders increased by 0.6%.

• Transportation equipment increased by $0.7 billion or 0.8% for two consecutive months to $87.6 billion.

Shipments

• In May, up twelve of the last thirteen months, shipment of manufactured durable goods increased by $3.6 billion or 1.3% to $268.4 billion.

• This followed a 0.3% April increase.

• Up seven of the last eight months, transportation equipment led the increase, $1.7 billion or 2.1% to $84.7 billion.

Unfilled Orders

• Unfilled orders for manufactured durable goods in May, up twenty-one consecutive months, increased $3.7 billion or 0.3% to $1,109.8 billion.

• This followed a 0.5% April increase.

• Up fifteen of the last sixteen months, transportation equipment led the increase, $2.9 billion or 0.5% to $639.8 billion.

Inventories

• Inventories of manufactured durable goods in May, up sixteen consecutive months, increased $2.7 billion or 0.6% to $482.7 billion.

• This followed a 0.9% April increase.

• Up nineteen consecutive months, Machinery led the increase, $1.0 billion or 1.2% to $82.3 billion.

Capital Goods

• Non-defense new orders for capital goods in May increased by $0.4 billion or 0.5%.

• Shipments increased by $1.3 billion or 1.6%.

• Unfilled orders increased by $3.9 billion or 0.6%.

• Inventories increased by $0.6 billion or 0.3%.

• In May, defense orders for capital goods increased by $0.3 billion or 2.6%.

• Shipments increased by $0.3 billion or 2.5%.

• Unfilled orders decreased by $0.2 billion or 0.1%.

• Inventories increased by $0.1 billion or 0.3%.

Sources: bea.gov; census.gov; nar.realtor; umich.edu; spglobal.com;  msci.com; fidelity.com; nasdaq.com; wsj.com; morningstar.com