• Inflation Concerns Pull S&P 500 Into Bear Market, Consumers Expect Tighter Credit Access, Hourly Wag

    Inflation Concerns Pull S&P 500 Into Bear Market

    The S&P 500 entered bear-market territory Monday, down 22% from its January peak, as concern over inflation and fears of a looming recession intensified.

    It was the first full-day response by investors to government data released Friday showing annual inflation hit a 40-year high of 8.6%, sparking concerns the Federal Reserve will begin to aggressively raise its key borrowing rate to curb inflation at its upcoming meeting this Wednesday. A significant increase to interest rates will further raise long-term rates for building and investing in commercial real estate.

    Results of a widely watched consumer survey, released late last week by the University of Michigan, showed Americans’ expectation for overall inflation over the next year rose to 5.4% in June, up from 3.3% in May. Over the next five years, consumers expect prices to rise 3.3%, up from a predicted 3% in the survey last month.

    Well before last week’s government inflation report, consumers were nervous that fast-rising prices would be sticking around for a while. May consumer survey data from the New York Federal Reserve, reporting median responses, shows respondents nationwide think inflation will still be at 6.6% as of May 2023, remaining far above the sub-2% rates the U.S. has seen for most of the past decade.

    That survey figure is the highest since the New York Fed began tracking year-ahead consumer inflation expectations in June 2013. The New York Fed said Monday that respondents in May expected their household income to rise 3% in the coming year, down 0.1 percentage points from the prior month but still above the average 2021 prediction of 2.9% growth.

    There was a sharper increase in expected household spending growth, with respondents anticipating that figure to rise 9% in the next year, compared to the 8% prediction in the April survey. This is the fifth consecutive monthly increase in that figure and a new high since tracking began, the New York Fed said. Consumers expect soaring gas prices to rise another 5.5% in the coming year.

    Consumers Expect Tighter Credit Access

    Along with some real estate analysts, consumers are expecting credit access to tighten in the coming year and beyond, with a slight uptick in perceived probability of missing a minimum debt payment, according to the New York Federal Reserve’s nationwide consumer survey.

    “Perceptions of credit access compared to a year ago deteriorated sharply in May, with more respondents saying it is harder to obtain credit than a year ago,” said a New York Fed statement. “Expectations about future credit availability also deteriorated, with more respondents expecting it will be harder to obtain credit in the year ahead.”

    Consumers put the probability of missing a debt payment over the next three months at a median of 11.1% in May, up 0.4% from the previous month. The increase was most pronounced for respondents between the age of 40 and 60.

    Respondents in May put a median probability of 35% on savings account interest rates rising in the coming year, the highest reading since January 2019. But well before Monday’s rout, consumers were less bullish on U.S. stock prices, putting the probability of higher prices as of May 2023 at 36.2%, down 1.7 percentage points from the month-earlier projection.

    Hourly Wages Decline

    Another measure of inflation’s impact comes from what’s happening with workers’ spending power. Real average hourly earnings for U.S. workers — measuring wage increases against price hikes for daily living expenses — declined 0.6% from April to May, the Labor Department reported.

    The figure is calculated from an increase of 0.3% in actual hourly earnings, weighed against a monthly increase of 1% in the consumer price index. Real average hourly earnings dropped 3% from May 2021 to May 2022, due largely to inflation.

    The latest monthly consumer survey from the New York Federal Reserve showed respondents in May expected their work earnings to grow by a median of 3% in the coming year, unchanged for the fifth consecutive month. Respondents put the probability at 38.6% — up from 36.3% in April — that the U.S. unemployment rate will be up in a year from its current 3.6%.

    Source: www.CoStar.com