The performance of the US economy can have an impact on the flow of money into the crypto market through its effect on investor sentiment and risk appetite. When the US economy is performing well, investors may be more willing to take on riskier investments like cryptocurrencies, which can lead to more money flowing into the crypto market. On the other hand, when the economy is not performing well, investors may become more risk-averse and pull their money out of riskier investments, including cryptocurrencies. However, it's important to note that the flow of money into the crypto market is also influenced by a variety of other factors, such as regulatory developments, technological advancements, and market sentiment, among others.
When analyzing the broader economic trends, some significant pieces of information from the previous week should be taken into account.
As per the data released by the Census Bureau on Wednesday, consumer expenditure is on the rise. Retail sales figures for January indicate a significant surge of 3.0% to reach an all-time high of $697 billion. To know more about the retail sales trend, refer to the above section.
The slowdown in industrial activity has a justifiable explanation. While the growth rate of industrial production activity remained stagnant in December, there was an actual increase of 1.0% in manufacturing output. The dip in the overall growth rate was primarily due to a reason that might not be perceived negatively by all. As stated by the Federal Reserve, the decline of 9.9% in utilities output in January was mainly attributed to the shift from cold weather in December to a warmer one in January, which resulted in decreased demand for heating.
The trend of decreasing inflation persists, with the Consumer Price Index (CPI) for January reflecting a year-on-year increase of 6.4%, as compared to 6.5% in December.
If we exclude the prices of food and energy, the core Consumer Price Index (CPI) displayed an increase of 5.6%, indicating a slight dip from 5.7% reported earlier.
Compared to the previous month, the CPI and core CPI figures for the current month showed a rise of 0.5% and 0.4%, respectively.
If we extrapolate the three-month trend in the monthly figures, the CPI and core CPI would reflect an annualized growth rate of 3.5% and 4.6%, respectively.
In conclusion, the inflation rates have been observing a downward trend, but they are still above the target rate of 2% set by the Federal Reserve.
The projections for inflation indicate a decline. As per the results of the New York Fed's Survey of Consumer Expectations conducted in January, the median inflation expectations remained constant for the one-year ahead horizon, while it reduced by 0.3 percentage points for the three-year ahead horizon and increased by 0.1 percentage points for the five-year ahead horizon. Therefore, the inflation expectations for the three-year and five-year horizon stand at 2.7% and 2.5%, respectively, while it is at 5.0% for the one-year horizon.
The inventory levels have observed a surge. As per the data shared by the Census Bureau on Wednesday, the business inventories for December reported an increment of 0.3% and amounted to $2.45 trillion. The ratio of inventories to sales was 1.37, marking a considerable increase from the 1.29 ratio recorded the previous year.
The sentiment of home builders has shown a positive change. As per the data released by the National Association of Home Builders (NAHB) on Wednesday, the home builder sentiment has improved in February. According to the chief economist of NAHB, Robert Dietz, although the Home Builders/Wells Fargo Housing Market Index (HMI) remains below the neutral level of 50, the improvement from 31 in December to 42 in February is a promising sign for the market. Despite the ongoing tightening of monetary policy by the Federal Reserve, the forecasts indicate that the housing market has already witnessed the peak mortgage rates for the current cycle. Although the mortgage rates and housing costs are expected to exhibit volatility in the future, the building market should attain stability in the next few months. The industry is expected to bounce back to the trend home construction levels by the beginning of 2024.
There has been an increase in credit card balances. As per the data provided by the NY Fed, the credit card balances during the fourth quarter rose by $61 billion, and the amount reached $986 billion, which is higher than the pre-pandemic high of $927 billion. Nevertheless, with the total credit limit standing at $4.4 trillion, consumers are not close to reaching the limit on their credit cards.
Debt delinquencies are returning to normal levels. According to the New York Fed, the share of debt that newly transitioned into delinquency has increased for almost all types of debt after two years of historically low delinquency transitions. The transition rates for credit cards and auto loans into early delinquency increased by 0.6 and 0.4 percentage points, respectively, following similar increases in the second and third quarters. The delinquency transition rates for mortgages increased by 0.15 percentage points. However, the transition rates for student loans have remained the same due to the federal repayment pause still being in place.
The number of unemployment claims remains at low levels. During the week ending Feb. 11, initial claims for unemployment benefits decreased to 194,000, down from 195,000 the previous week. Although the figure has increased from its 60-year low of 166,000 in March 2022, it remains close to the levels typically observed during times of economic growth.
There is mounting evidence supporting a positive economic scenario where inflation decreases to more manageable levels without the economy falling into a recession. The Federal Reserve has also become less hawkish in its tone, acknowledging that disinflation has started. However, inflation needs to decrease further before the Fed is comfortable with prices, meaning monetary policy tightening will continue, leading to tighter financial conditions, such as higher interest rates, tighter lending standards, and lower stock valuations. This could result in continued market volatility, but the risk of a recession is relatively high.
Despite this risk, consumers are financially resilient, with unemployment decreasing, salaries increasing, and excess savings available. Consumer spending data indicates strong financial resilience, which means there is no need to worry about consumption at this point. If a downturn occurs, it is unlikely to result in economic calamity since consumers and businesses remain financially healthy.
Investors should always remember that recessions and bear markets are part of investing in the stock market for long-term returns. Although the stock market has had a challenging year, the long-term outlook for stocks is still positive.
Data Points to Consider Before FOMC
The performance of the US economy can have an impact on the flow of money into the crypto market through its effect on investor sentiment and risk appetite. When the US economy is performing well, investors may be more willing to take on riskier investments like cryptocurrencies, which can lead to more money flowing into the crypto market. On the other hand, when the economy is not performing well, investors may become more risk-averse and pull their money out of riskier investments, including cryptocurrencies. However, it's important to note that the flow of money into the crypto market is also influenced by a variety of other factors, such as regulatory developments, technological advancements, and market sentiment, among others.
When analyzing the broader economic trends, some significant pieces of information from the previous week should be taken into account.
As per the data released by the Census Bureau on Wednesday, consumer expenditure is on the rise. Retail sales figures for January indicate a significant surge of 3.0% to reach an all-time high of $697 billion. To know more about the retail sales trend, refer to the above section.
The slowdown in industrial activity has a justifiable explanation. While the growth rate of industrial production activity remained stagnant in December, there was an actual increase of 1.0% in manufacturing output. The dip in the overall growth rate was primarily due to a reason that might not be perceived negatively by all. As stated by the Federal Reserve, the decline of 9.9% in utilities output in January was mainly attributed to the shift from cold weather in December to a warmer one in January, which resulted in decreased demand for heating.
The trend of decreasing inflation persists, with the Consumer Price Index (CPI) for January reflecting a year-on-year increase of 6.4%, as compared to 6.5% in December.
If we exclude the prices of food and energy, the core Consumer Price Index (CPI) displayed an increase of 5.6%, indicating a slight dip from 5.7% reported earlier.
Compared to the previous month, the CPI and core CPI figures for the current month showed a rise of 0.5% and 0.4%, respectively.
If we extrapolate the three-month trend in the monthly figures, the CPI and core CPI would reflect an annualized growth rate of 3.5% and 4.6%, respectively.
In conclusion, the inflation rates have been observing a downward trend, but they are still above the target rate of 2% set by the Federal Reserve.
The projections for inflation indicate a decline. As per the results of the New York Fed's Survey of Consumer Expectations conducted in January, the median inflation expectations remained constant for the one-year ahead horizon, while it reduced by 0.3 percentage points for the three-year ahead horizon and increased by 0.1 percentage points for the five-year ahead horizon. Therefore, the inflation expectations for the three-year and five-year horizon stand at 2.7% and 2.5%, respectively, while it is at 5.0% for the one-year horizon.
The inventory levels have observed a surge. As per the data shared by the Census Bureau on Wednesday, the business inventories for December reported an increment of 0.3% and amounted to $2.45 trillion. The ratio of inventories to sales was 1.37, marking a considerable increase from the 1.29 ratio recorded the previous year.
The sentiment of home builders has shown a positive change. As per the data released by the National Association of Home Builders (NAHB) on Wednesday, the home builder sentiment has improved in February. According to the chief economist of NAHB, Robert Dietz, although the Home Builders/Wells Fargo Housing Market Index (HMI) remains below the neutral level of 50, the improvement from 31 in December to 42 in February is a promising sign for the market. Despite the ongoing tightening of monetary policy by the Federal Reserve, the forecasts indicate that the housing market has already witnessed the peak mortgage rates for the current cycle. Although the mortgage rates and housing costs are expected to exhibit volatility in the future, the building market should attain stability in the next few months. The industry is expected to bounce back to the trend home construction levels by the beginning of 2024.
There has been an increase in credit card balances. As per the data provided by the NY Fed, the credit card balances during the fourth quarter rose by $61 billion, and the amount reached $986 billion, which is higher than the pre-pandemic high of $927 billion. Nevertheless, with the total credit limit standing at $4.4 trillion, consumers are not close to reaching the limit on their credit cards.
Debt delinquencies are returning to normal levels. According to the New York Fed, the share of debt that newly transitioned into delinquency has increased for almost all types of debt after two years of historically low delinquency transitions. The transition rates for credit cards and auto loans into early delinquency increased by 0.6 and 0.4 percentage points, respectively, following similar increases in the second and third quarters. The delinquency transition rates for mortgages increased by 0.15 percentage points. However, the transition rates for student loans have remained the same due to the federal repayment pause still being in place.
The number of unemployment claims remains at low levels. During the week ending Feb. 11, initial claims for unemployment benefits decreased to 194,000, down from 195,000 the previous week. Although the figure has increased from its 60-year low of 166,000 in March 2022, it remains close to the levels typically observed during times of economic growth.
There is mounting evidence supporting a positive economic scenario where inflation decreases to more manageable levels without the economy falling into a recession. The Federal Reserve has also become less hawkish in its tone, acknowledging that disinflation has started. However, inflation needs to decrease further before the Fed is comfortable with prices, meaning monetary policy tightening will continue, leading to tighter financial conditions, such as higher interest rates, tighter lending standards, and lower stock valuations. This could result in continued market volatility, but the risk of a recession is relatively high.
Despite this risk, consumers are financially resilient, with unemployment decreasing, salaries increasing, and excess savings available. Consumer spending data indicates strong financial resilience, which means there is no need to worry about consumption at this point. If a downturn occurs, it is unlikely to result in economic calamity since consumers and businesses remain financially healthy.
Investors should always remember that recessions and bear markets are part of investing in the stock market for long-term returns. Although the stock market has had a challenging year, the long-term outlook for stocks is still positive.