3 Insights From the Latest U.S. Economic Data
Each month, the Federal Reserve Bank of New York publishes monthly economic snapshots.
To make this report accessible to a wider audience, we’ve identified the three most important takeaways from the report and compiled them into one infographic.
1. Growth figures in Q2 will make or break a recession
Generally speaking, a recession begins when an economy exhibits two consecutive quarters of negative GDP growth. Because U.S. GDP shrank by -1.5% in Q1 2022 (January to March), a lot rests on the Q2 figure (April to June) which should be released on July 28th.
Referencing strong business activity and continued growth in consumer spending, economists predict that U.S. GDP will grow by +2.1% in Q2. This would mark a decisive reversal from Q1, and put an end to recessionary fears for the time being.
Unfortunately, inflation is the top financial concern for Americans, and this is dampening consumer confidence. Shown below, the consumer confidence index reflects the public’s short-term outlook for income, business, and labor conditions.
Falling consumer confidence suggests that more people will delay big purchases such as cars, major appliances, and vacations.
2. The COVID-era housing boom could be over
Housing markets have been riding high since the beginning of the COVID-19 pandemic, but this run is likely coming to an end. Here’s a summary of what’s happened since 2020:
- Lockdowns in early 2020 created lots of pent-up demand for homes
- Greater household savings and record-low mortgage rates pushed demand even further
- Supply chain disruptions greatly increased the cost of materials like lumber
- Construction of new homes couldn’t keep up, and housing supply fell to historic lows
Today, home prices are at record highs and the cost of borrowing is rapidly rising. For evidence, look no further than the 30-year fixed mortgage rate, which has doubled to more than 6% since the beginning of 2022.
Given these developments, the drop in the number of home sales could be a sign that many Americans are being priced out of the market.
3. Don’t expect groceries to become any cheaper
Inflation has been a hot topic this year, especially with gas prices reaching $5 a gallon. But there’s one category of goods that’s perhaps even more alarming: food.
The following table includes food inflation over the past three years, as the percent change over the past 12 months.
|Date||CPI Food Component (%)|
From this data, we can see that food inflation really picked up speed in April 2020, jumping to +3.5% from +1.9% in the previous month. This was due to supply chain disruptions and a sudden rebound in global demand.
Fast forward to today, and food inflation is running rampant at 10.1%. A contributing factor is the impending fertilizer shortage, which stems from the Ukraine war. As it turns out, Russia is not only a massive exporter of oil, but wheat and fertilizer as well.
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Interest Rate Hikes vs. Inflation Rate, by Country
Inflation rates are reaching multi-decade highs in some countries. How aggressive have central banks been with interest rate hikes?
Interest Rate Hikes vs. Inflation Rate, by Country
Imagine today’s high inflation like a car speeding down a hill. In order to slow it down, you need to hit the brakes. In this case, the “brakes” are interest rate hikes intended to slow spending. However, some central banks are hitting the brakes faster than others.
This graphic uses data from central banks and government websites to show how policy interest rates and inflation rates have changed since the start of the year. It was inspired by a chart created by Macrobond.
How Do Interest Rate Hikes Combat Inflation?
To understand how interest rates influence inflation, we need to understand how inflation works. Inflation is the result of too much money chasing too few goods. Over the last several months, this has occurred amid a surge in demand and supply chain disruptions worsened by Russia’s invasion of Ukraine.
In an effort to combat inflation, central banks will raise their policy rate. This is the rate they charge commercial banks for loans or pay commercial banks for deposits. Commercial banks pass on a portion of these higher rates to their customers, which reduces the purchasing power of businesses and consumers. For example, it becomes more expensive to borrow money for a house or car.
Ultimately, interest rate hikes act to slow spending and encourage saving. This motivates companies to increase prices at a slower rate, or lower prices, to stimulate demand.
Rising Interest Rates and Inflation
With inflation rates hitting multi-decade highs in some countries, many central banks have announced interest rate hikes. Below, we show how the inflation rate and policy interest rate have changed for select countries and regions since January 2022. The jurisdictions are ordered from highest to lowest current inflation rate.
|Jurisdiction||Jan 2022 Inflation||May 2022 Inflation||Jan 2022 Policy Rate||Jun 2022 Policy Rate|
The Euro area has 3 policy rates; the data above represents the main refinancing operations rate. Inflation data is as of May 2022 except for New Zealand and Australia, where the latest quarterly data is as of March 2022.
The U.S. Federal Reserve has been the most aggressive with its interest rate hikes. It has raised its policy rate by 1.5% since January, with half of that increase occurring at the June 2022 meeting. Jerome Powell, the Federal Reserve chair, said the committee would like to “do a little more front-end loading” to bring policy rates to normal levels. The action comes as the U.S. faces its highest inflation rate in 40 years.
On the other hand, the European Union is experiencing inflation of 8.1% but has not yet raised its policy rate. The European Central Bank has, however, provided clear forward guidance. It intends to raise rates by 0.25% in July, by a possibly larger increment in September, and with gradual but sustained increases thereafter. Clear forward guidance is intended to help people make spending and investment decisions, and avoid surprises that could disrupt markets.
Pacing Interest Rate Hikes
Raising interest rates is a fine balancing act. If central banks raise rates too quickly, it’s like slamming the brakes on that car speeding downhill: the economy could come to a standstill. This occurred in the U.S. in the 1980’s when the Federal Reserve, led by Chair Paul Volcker, raised the policy rate to 20%. The economy went into a recession, though the aggressive monetary policy did eventually tame double digit inflation.
However, if rates are raised too slowly, inflation could gather enough momentum that it becomes difficult to stop. The longer high price increases linger, the more future inflation expectations build. This can result in people buying more in anticipation of prices rising further, perpetuating high demand.
“There’s always a risk of going too far or not going far enough, and it’s going to be a very difficult judgment to make.” — Jerome Powell, U.S. Federal Reserve Chair
It’s worth noting that while central banks can influence demand through policy rates, this is only one side of the equation. Inflation is also being caused by supply chain issues, a problem that is more or less outside of the control of central banks.
Mapping Shipping Lanes: Maritime Traffic Around the World
Where are the world’s major shipping lanes? These maps show global maritime traffic density, highlighting some of the busiest areas across the globe.
Mapping Shipping Lanes: Maritime Traffic Around the World
Each year, thousands of ships travel across the globe, transporting everything from passengers to consumer goods like wheat and oil.
But just how busy are global maritime routes, and where are the world’s major shipping lanes? This map by Adam Symington paints a macro picture of the world’s maritime traffic by highlighting marine traffic density around the world.
It uses data from the International Monetary Fund (IMF) in partnership with The World Bank, as part of IMF’s World Seaborne Trade Monitoring System.
Data spans from Jan 2015 to Feb 2021 and includes five different types of ships: commercial ships, fishing ships, oil & gas, passenger ships, and leisure vessels.
An Overview of Key Maritime Shipping Lanes
If you take a look at the map, you’ll spot some distinct areas where traffic is heavily concentrated.
These high-density areas are the world’s main shipping lanes. Syminton provided some zoomed-in visuals of these waterways in detail, so let’s dive in:
The Panama Canal is a man-made waterway that connects the Pacific and Atlantic Oceans. For ships traveling from the east to west coast of the U.S., this route avoids the far more treacherous Cape Horn at the tip of South America or the Bering Strait in the Arctic, and shaves off roughly 8,000 nautical miles—or 21 days off their journey.
In 2021, approximately 516.7 million tons of goods passed through the major waterway, according to Ricaurte Vasquez, the Panama Canal Authority’s administrator.
Strait of Malacca
This marine passage is the fastest connector between the Pacific and Indian oceans, winding through the Malay Peninsula and Sumatra. It’s a slender waterway—at its narrowest point, the canal is less than 1.9 miles wide. Approximately 70,000 ships pass through this strait each year.
The Danish Straits
Connecting the North Sea with the Baltic Sea, the Danish Straits include three channels: the Oresund, the Great Belt and the Little Belt.
The Danish Straits are known to be a major passageway for Russian oil exports—which, despite sanctions and boycotts against Russian oil, have remained strong throughout 2022 so far.
This 120-mile-long artificial waterway runs through Egypt and connects the Mediterranean Sea to the Red Sea, saving ships traveling between Asia and Europe a long passage around Africa. Over 20,600 vessels traveled through the canal in 2021.
Last year, the canal made headlines after a 1,312-foot-long container ship called the Ever Given got stuck in the canal for six days, causing a massive traffic jam and halting billions of dollars worth of traded goods.
Strait of Hormuz
This 615-mile waterway connects the Persian Gulf and the Gulf of Oman and ultimately drains into the Arabian Sea. In 2020, the canal transported approximately 18 million barrels of oil every day.
The English Channel
Located between England and France, the 350-mile-long English Channel links the North Sea to the Atlantic Ocean. Approximately 500 vessels travel through the channel each day, making it one of the world’s busiest shipping lanes.
Some of the major European rivers are also clearly visible in these visualizations, including the Thames in the UK, the Seine in France, and the Meuse (or Mass) that flows through Belgium and the Netherlands.
COVID-19’s Impact on Maritime Transport
Though these maps show six years worth of marine traffic, it’s important to remember that many sectors were negatively impacted by the global pandemic, and maritime trade was no exception. In 2020, global maritime shipments dropped by 3.8% to 10.65 billion tons.
While the drop wasn’t as severe as expected, and output is projected to keep growing throughout 2022, certain areas are still feeling the effects of COVID-19-induced restrictions.
For instance, in March 2022, shipping volume at the port of Shanghai screeched to a halt due to strict lockdowns in Shanghai, triggered by a COVID-19 outbreak. Traffic was impacted for months, and while operations have rebounded, marine traffic in the area is still congested.
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