• Consumer spending is showing resilience despite inflation being at a nearly 40-year high.
• However, high prices and interest rates continue to slow economic activity in June, with mortgage applications the lowest in two years.
• Gasoline prices hit another record for the week ended June 6, and metal prices and the cost of shipping goods to the U.S. remain above 2019 averages.
• This gives the Fed reason to raise rates by 50 basis points (bps) in June, with another 50 bps move lined up in July.

Virus and mobility

COVID-19 cases:   Average new cases in the U.S. were 110,817 on June 7, increasing by 102% since the beginning of May and by 8% from the start of June. However, cases are 86% below the recent peak on Jan. 15. Average number of deaths have also been rising since the start of June, recording a 16% increase over the month, with average daily deaths at 323 as of June 7. Vaccination rates has been improving very slowly since March, with fully vaccinated people increasing by 2 percentage points to 67.3% and people with at least one dose up by 1 point to around 78.6% on June 8.

Mobility:   The google mobility trends retail and recreation subindex as of May 30 was 4% below its pre-pandemic baseline. It is well above its recent Jan. 7 low of 21% below pre-pandemic levels. According to the Oxford stringency index, stringency in U.S. reduced to 38.9 from 53.2 in early January (100=strictest), suggesting reduced restrictions, which has in turn helped mobility. China and Japan are the most stringent, at 79% and 45%, respectively.

People-facing COVID-19-sensitive

Open Table:   Nationally seated dinners were about 7% under the pre-pandemic base line as states like Illinois and New York are still operating 26% and 33% below pre-COVID levels, respectively. That said, major cities in states like Florida and Texas are operating around 17% above the pre-pandemic levels.

Air traffic:   Air traffic trend in the U.S. has held steady, with travelers passing through airport security checkpoints hovering around 10% below the pre-pandemic levels since March. While the recent pickup in infection rates had a small impact on travel, COVID-19 policies remaining in place are keeping air traffic from full recovery.

Hotel occupancy:   The occupancy rate slipped below the 2019 average of 66.1% to 63.20%, for the week ended June 4. The rate was also down from the previous week by 3.3 percentage points due to a post-Memorial Day slowdown.

Current and future activity

Weekly Economic Index (WEI):   The WEI is in the process of returning to its pre-COVID-19 levels as spending patterns and business activity normalize. The WEI for the week ended June 4 came in at 3.70% year over year, which was 7.5 percentage points down from its all-time high of 11.21% (year over year) as of May 1 but higher by 0.22 percentage points compared with last week.

Taiwan Purchasing managers' index (PMI) measures:   The Taiwan manufacturing PMI index expanded for the 23rd month in a row to 53.50 for May but decelerated from April by 2.80 percentage points. The momentum slowed as manufacturers' new orders and production contracted at 45.6 and 47.9, respectively.

U.S. Purchasing managers' index (PMI) measures:   The manufacturing and services PMI both were in expansion territory (at 56.10 and 55.90, respectively) for the month of May. The manufacturing PMI accelerated by 0.7 percentage points to 56.10 in May from 55.40 in April. While the nonmanufacturing PMI decreased by 1.2 percentage points to 55.90 from 57.10 in April.

Raw steel capacity:   Raw steel capacity utilization remained above the 2019 average for the eighth consecutive week. For the week ended June 4, capacity utilization came in at 81.6%, which was almost 0.8 percentage points below the previous week and 0.9 percentage points above the 2019 average.

Home mortgage applications:   For the week ended June 3, the mortgage applications index came in at 208.20, its lowest level since May 2020. The index declined by almost 47 points since the start of the May due to supply and affordability problems in the purchase market.

Johnson Redbook same-store index:   The same-store sales index has been declining after reaching its all-time high of 18.5% (year over year) in early January; the growth is down by about 6 percentage points. That said, the sales index for the week ended June 4 registered 12.3% year-over-year growth despite inflation being at nearly a 40-year high.

Rigs count:   The number of active drilling rigs in the U.S. has stabilized at 574 rigs for the past two weeks. Despite oil prices being at their highest levels, there is a significant gap between active drilling rigs as of June 3 and the pre-pandemic levels of 103 rigs.

Consumer confidence:   The weekly Ipsos Forbes Consumer Confidence Index halted its six-week decline and stabilized at 52.3 (for the week ended June 2), down by 0.2 points from the two weeks ago. The sentiment is down by 10.1 points from its highest level of 62.4 at the same time last year. Sentiment remains dampened as inflation remains at historic highs. The Conference Board consumer index, for the month of May, also declined compared with April by 0.9 points. University of Michigan, in contrast, plunged by 8.2 points to a record low of 50.2 in the preliminary numbers for June.

Prices

Lumber futures:   As of June 7, lumber futures traded at $596/1,000 board feet, which was approximately 59% down from its recent peak on March 7 and the lowest since November 2021. It remained 36% above pre-pandemic levels. Lumber dealers have been cutting prices to avoid piling up of inventory as demand for new housing continued to fall. The recent data for new home sales showed a decline by almost 16% from March to April (the largest decline in the past nine years).

CBR-BLS Metal Price Index:   The metal price index climbed up again by nearly 5% after dropping to $1,214 per point (on May 13) from its all-time high of $1,431 per point on April 4. As of June 6, the index was $1,274 per point, which is still almost 62% above the pre-pandemic average.

Freightos Baltic Global Index:   The Freightos Baltic Global index further dropped to $7,265 per point (on June 7), falling by 29% from its record high value of $11,137 per point in September 2021 and by almost 25% since the beginning of March. However, the index remained almost 5x above its pre-pandemic average. As consumption patterns continue to normalize to pre-COVID-19 times, container imports bound for the U.S. have dropped, pushing freight rates down.

Gasoline prices:   Oil prices for the week ended June 6 reached a new high of $4.88 per gallon on the back of increased demand from China as the country relaxed restrictions after recording the lowest number of cases of COVID-19 in the past two months. U.S. oil inventories, as per the American Petroleum Institute, rose by 1.85 million barrels for the week ended June 6 but were not able to temper the price.

Forward inflation expectations:   Five- and 10-year inflation expectations climbed by 11 percentage points and 9 percentage points over the last week, respectively, to reach 2.43% and 2.73% on June 7. The Fed kickstarted its balance sheet reduction program June 1, and it plans to reduce its $9 trillion balance sheet by nearly $45 billion per month to tame inflation.

Labor market

Initial jobless claims versus Indeed job postings:   For the week ended June 4, initial jobless claims increased by 27,000 to a five-month high. This stands against a strong labor market with the unemployment rate currently at 3.6%. Indeed job postings remained high compared with Feb. 1, 2020. However, postings year to date saw a slight decline by 7.7 percentage points from the all-time high of 63.5% (above the Feb. 1, 2020, levels) recorded on Dec. 31, 2021. As of June 4, indeed job postings were up 55.8% from the Feb. 1, 2020, baseline.