The World Bank predicts global growth to slump to 2.9% in 2022

Outlook: Today is as slow a data day as it gets– weekly MBA mortgage applications, April final wholesale inventories, and the Energy Dept oil inventories.  Watch for made-up outrages.

The Atlanta Fed GDPNow was a disappointing 0.9% for Q2, down from 1.3% on June 1, again on worsening in consumer spending and private investment. This points to recession, while the financial press has turned a corner to stagflation, according to a WSJ headline. This is probably because TreasSec Yellen admitted (again) she missed the rise in inflation and yes, it can persist for longer than we think. The US will be raising its forecast from 4.7% to something higher now we have seen the whites of 8% eyes.

Meanwhile, as noted above, the World Bank is still focused on recession. The World Bank predicts global growth to slump to 2.9% in 2022 from 5.7% in 2021, significantly lower than 4.1% in Jan. The US will slow to 2.5% in 2022, down by 1.2% from the earlier forecast. “New U.S. inflation data, to be released Friday, is expected by economists to show the annual rate holding steady at 8.3% in May, near a 40-year high.”

The other data of note yesterday was consumer credit, touted by some at catastrophically high levels. One reports says it’s up 20%, showing consumers use cards to support current consumption. But it’s not so. The revolving credit balance is a mere $1.04 trillion in April, up 2.6% from April 2019. You have to cut out non-revolving and also beware annualizing a single month. Year-over-year is far better and year-over-pandemic year is better yet.

When you see wildly bigger numbers, consider the exact nature of the liability being named. Revolving credit (ex-mortgages) is credit cards and personal loans, and as Wolf Street points out, “Since 2019, consumer spending has increased 19%, and revolving credit has increased only 2.9%, both not adjusted for 13% inflation over the period. In other words, growth in revolving credit fell sharply behind inflation and fell massively behind growth in consumer spending. This shows that consumers are relying less on revolving credit.

“Credit cards and some types of personal loans, such as payday loans, are the most expensive form of credit, and they often come with usurious interest rates. Credit card rates can exceed 30%. And Americans have figured this out. If they need to fund purchases, many consumers use cheaper loans, including cash-out refinancing of their mortgages. And many, many consumers are using their credit cards just as payment methods, and they pay them off every month. That’s what these relatively low balances show.”

Wolf also complains about seasonal adjustments to the series and while he’s right, it’s not the main event, which is that the US consumer may be greedy, but he’s not stupid, and we are not seeing a drunken sailor spending spree as some versions of the data seem to show. Here we have a case of two semi-maverick analysts, both of them deeply skeptical of the government and all its data and minions, but with great charting capability and this time, divergent views. On the whole, Wolf is less politically biased and we say that helps.

Next up is the ECB policy meeting and perhaps a crisis in the UK, where Boris wants to fiddle the N. Ireland protocol and kick out the European Court. He might get away with it and it’s not a death knell to his political career as some hope, but it’s probably very, very bad for the UK economy, depending on what retaliation the Europeans come up with. At a guess, the euro’s resilience in the face of a dollar semi-rally yesterday will spill over to strength against the pound today and going forward. We see doom for sterling.

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