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Money flows like a river — Week of May 20, 2024


Done with the rapids soon?

Essential Economics

— Mark Frears


While up at the cottage in Canada, I was reminded of the power of the ice as it is breaking up. Water can be pretty innocuous when it is in a glass, but if you freeze it and then melt it, look out. Watching a river will also show you two sides of H2O. A broad area has lazy flows, but if you restrict it, rapids and all their craziness will result.

Money flows make up the broader economy. “Follow the money” will provide insight into what is working and what needs help. 


The largest uncertainty in the economy right now is inflation. The Fed is committed to bringing it down to their target level of 2%, but prices continue to be restrictive on the economy. As you can see below, the Consumer Price Index (CPI) on a year-over-year basis has bottomed and is moving higher.  

line graph overlay on histogram- Contributions to US CPI YoY% NSA

Source: Bloomberg

Services continue to be the largest component, and these higher prices restrict the amount consumers have to spend. Think of it as rapids on a river, where the flow is not moving as smoothly. This causes turbulence, or volatility, forcing the consumer to face tough decisions.

The chart below shows costs of basic needs versus wages (Employment Cost Index), and prices continue to outpace income gains.

line graph- Strategas' Common Man CPI vs. Wages; Source: Strategas, BLS, Haver

If someone is restrcted in their cash flow due to continued higher prices, there will not be enough flow to meet all the obligations. The chart below shows how prices are having an impact in keeping up with other payments.

line graphs for debt %90+ Days Delinquent (NY Fed) 4 Qtr. Sum 2024:Q1 - 1) U.S. Credit Card Debt; 2) U.S. Auto Loan Debt

Source: Piper Sandler

Despite commentaries stating this is only happening to lower- and middle-income households, you can see this is an issue across all demographics. 

Looking ahead

There are a few areas that could point to a less restricted flow of money for consumers. First, in the housing sector, the New Tenants Repeat Rent Index (NTRR) for first quarter of 2024 suggests a slower pace of shelter inflation in the second half of this year. As shelter makes up 43% of CPI, this could be significant. Second, goods inflation was a driver in the first quarter, and with a smoother supply chain, this could give us a break.

Fed and fiscal

The Fed’s stated current goal is to bring prices back down to a 2% level, per the core Personal Consumption Expenditure (PCE) metric. Their means of doing this is by raising short-term interest rates, causing money to be less available, and thereby slowing the economy. Unfortunately for them, the uncertainty from the rapids is lasting longer than they would like. While we may not be in a class V area anymore, we still are dealing with class III rapids.

As you can see below, the three-month average for core PCE, taking out the seasonal variations, is accelerating, not moving down to the target level of 2%.

Line graph overlay on histogram - Core PCE and Components (3M SAAR, %)

Source: BEA, Morgan Stanley Research

Complicating the Fed’s mission is the continued spending by the government, known as fiscal stimulus. The chart below shows how stimulus continues post-pandemic, and this serves to add more money flow to the economy, not helping us to get to calmer waters.

Histogram- Strategas Consumer Stimulus Indicator: Four-Quarter Cumulative Stimulus

Source: Strategas Research

The economy continues to plug along, and we agree that some level of inflation is healthy, but the longer that this level of higher prices continues, the more likely we are to run into a spiraling eddy.

Economic releases

Last week’s news was focused on inflation. PPI came in hotter than expected, but the lower-than-expected CPI gave the markets some hope. This is one month, not an established trend!

This week’s calendar will give us some housing news and durable goods, as well as an update on consumer sentiment. Recent sentiment numbers are starting to show some angst. See below for details.   


River rapids can be a lot of fun, but you need to have an outstanding guide. Make sure you have the best-in-class at the rudder of your boat.

 Upcoming Economic Releases:PeriodExpectedPrevious
21-MayPhiladelphia Fed Non-Manuf ActivityMayN/A(12.4)
22-MayExisting Home SalesApr4,220,000 4,190,000 
22-MayExisting Home Sales MoMApr0.6%-4.3%
22-MayFOMC Meeting Minutes from 5/11p CT  
23-MayChicago Fed Natl Activity IndexApr0.13 0.15 
23-MayInitial Jobless Claims18-May220,000 222,000 
23-MayContinuing Claims11-May1,791,000 1,794,000 
23-MayS&P Global US Manufacturing PMIMay P49.9 50.0 
23-MayS&P Global US Services PMIMay P51.4 51.3 
23-MayS&P Global US Composite PMIMay PN/A51.3 
23-MayNew Home SalesApr679,000 693,000 
23-MayNew Home Sales MoMApr-2.1%8.8%
23-MayKC Fed Manufacturing ActivityMay(7)(8)
24-MayDurable Goods OrdersApr P-0.7%2.6%
24-MayDurable Goods ex TransportationApr P0.1%0.2%
24-MayCap Goods Orders Nondef ex Aircraft Apr P0.1%0.1%
24-MayUM Consumer SentimentMay F67.7 67.4 
24-MayUM Current ConditionsMay FN/A68.8 
24-MayUM ExpectationsMay FN/A66.5 
24-MayUM 1-yr inflationMay FN/A3.5%
24-MayUM 5-10-yr inflationMay FN/A3.1%
24-MayKC Fed Services ActivityMayN/A

Mark Frears is a Senior Investment Advisor, Managing Director, at Texas Capital Bank Private Wealth Advisors. He holds a Bachelor of Science from The University of Washington, and an MBA from University of Texas – Dallas.

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