As higher interest rates continue to put pressure on borrowers, the ability of the average person to afford a mortgage diminishes.  Higher mortgage rates lead to downward pressure on residential home values as fewer borrowers can afford higher payments.  Simultaneously, commercial real estate is dropping in value as vacancies continue increasing.

Put both of these issues together and already tenuous banks holding mortgage bonds as assets can become more unstable.

This dynamic creates the continual tremors in the background of an economy already suffering from high inflation and low consumer purchasing of durable goods.

A perfect storm starts to realize.

(Wall Street Journal) U.S. existing-home sales decreased 2.4% in March from the prior month to a seasonally adjusted annual rate of 4.44 million, the National Association of Realtors said Thursday. March sales fell 22% from a year earlier.

March marked the 13th time in the previous 14 months that sales have slowed. The housing market had a surprisingly strong February, when sales rose a revised 13.75% from the previous month. But after mortgage rates ticked higher, March sales resumed the extended period of declines.

The housing market’s slowdown is now starting to weigh on prices, which have fallen on an annual basis for two consecutive months for the first time in 11 years. The national median existing-home price decline of 0.9% in March from a year earlier to $375,700 was the biggest year-over-year price drop since January 2012, NAR said.

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Always keep in mind that retails sales from the Dept of Commerce [DATA HERE pdf] are always calculated in dollars.  Inflation can artificially skewer retail sales if prices increase, and yet consumer purchases decline at a rate lower than the increase in price.  Fewer units sold at higher prices can give the false impression of increased sales.

During an inflationary environment, when prices increase yet retail sales drop, there are substantially fewer units being purchased.  Overall purchases at stores, restaurants and online declined a seasonally adjusted 1% in March from the prior month.

During the time measured gasoline was less expensive, so that led the drop in fuel sales; however, drops in dept stores (-2.5%), General Merchandise (-3.0%), electronics (-2.1%), and building supplies (-2.1%), shows another broad-based pullback of Main Street consumer spending. (pdf here)

These outcomes are in general alignment with what many people have shared via regional ground reports.  Grocery store sales are flat despite major increases in grocery store prices (+10 to +20%).  People are buying fewer grocery store units and making their food budget stretch as far as possible.

Durable goods are not considered essential, and sales of cars, electronics and department store products are much lower.

I am actually a little (pleasantly) surprised to see restaurant sales holding (+0.1%), despite the massive increase in fresh food costs.   I thought people would eat out less, but the total decline in restaurant foot traffic seems to be in the single digits.  I guess people can afford it more than I anticipated.

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In the latest round of statistics from the Bureau of Labor and Statistics (BLS) the March inflation data has been released [DATA HERE]. The Consumer Price Index (CPI) climbed 0.1% in March after advancing 0.4% in February.  This puts the 12-month CPI outlook at 5% inflation. [See Modified Table A on Left]

A 4.6% decline in March gasoline prices was offset by higher rental and housing costs.  That was the primary driver of the lowered inflationary data as gasoline is weighted heavier in the impact.

However, that said, gasoline prices are already rising again after Saudi Arabia and other OPEC+ oil producers early this month announced further oil output cuts.  This puts the April CPI data (starting to be assembled this week) on track to increase over March.

Overall, in the big picture the data shows the plateau of sorts as we described for this spring.  This plateau will be followed by another bump as a result of current input costs and prior energy costs traveling through the supply chain.

Energy services, electricity and natural gas, are stable but higher than last year.  The crop cycles carry those increased costs from field to fork.  Consumers cannot avoid those food prices increasing.  The more processing involved in the food sector, the higher the price increase.

Housing increases are another unavoidable cost and generally cycle with a lag within them.  As leases expire, the new lease rates increase accordingly.  The same is true for insurance rates.  Both unavoidable sectors have a rolling lag that hits the consumer upon renewal.

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A few days after the terror attack of 9-11-01, someone in media asked George W. Bush what Americans can do to help.  Dubya’s response drew instant criticism, because he asked people to go shopping… but in the big picture, President Bush knew what could happen if the economic freeze continued.

When it comes to politics and economic outlooks, trust your instincts.  The economics of the ‘thing’ is always the reason the ‘thing’ exists or does not exist.

When you are looking at economic news, always remind yourself… the people producing the news have a vested interest in maintaining a very specific outlook.  The motive behind what Dubya said in September of 2001, pertains every bit as much today.  Economic outcomes can topple entire governments.

Remember, this current ‘supply-side energy policy driven inflation‘, a purposeful effort to shrink the economy and yet tenuously maintain control, has never happened before.  The people behind the Build Back Better agenda are, in reality, experimenting with a theory. DATA…

(ISM) – The Institute for Supply Management’s PMI contracted for the fifth straight month in March registering 46.3, the lowest level since May 2020. Any reading below 50.0 indicates contraction.  The employment index declined by 2.2 percent to a level of 46.9.

Most of the impediments to manufacturing growth — such as shortages and lockdowns — have subsided, said Tim Fiore, chair of the ISM’s manufacturing survey committee, with the exception of pricing. ISM’s pricing index fell below 50 in March but at 49.2 remains higher than pre-pandemic levels.

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French President Emmanuel Macron was in the Netherlands today speaking to an audience in the Hague about his vision for the future of Europe.  A remarkably disassociated speech was the outcome.

Speaking of the importance of innovation to maintain economic competitiveness, on his right-hand Macron cheers for capitalism as an outcome of competition from the only venue it exists, the nation state.  Yet on his left hand, Macron proclaims the importance of ‘globalism’ and economic socialism, which is the anthesis of creating innovation.

Economic nationalism is the only way competition between nation states succeeds. Innovation is born from competition, and without the nation state there is no baseline to maintain capitalism.  Globalism creates socialism, equity as the baseline for distribution of innovative outcomes.  Capitalism and socialism cannot coexist if innovation and competition is the goal.  The pillars which form the baseline for Macron’s view of a new Europe, collapse in his contradictory worldview.  Prompted to 10:55, WATCH:

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Macron’s solution to the problem of innovation lacking in ‘globalist‘ economic models, is to force citizens to produce and innovate.  This is what he means by “reforms” in the competitive agenda.  Forced innovation, is the worldview of totalitarians.   Capitalism relies on freedom, not coercion.

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The United States Treasury Dept is planning to send officials to key parts of the globe to act as enforcers for western sanctions against Russia. Essentially, it’s a blackmail and extortion tour, where Liz Rosenberg and Brian Nelson will visit non-compliant nations and central Western banking hubs to threaten foreign nations against continued noncompliance.

Whether any nation complies with the pressure campaign threats is still unknown. However, against the backdrop of various geopolitical alliances now cleaving the global economy, and with a larger network of non-western nations now forming their own trade partnerships without regard for Washington DC opinion, the effort to draw “with us” or “against us” lines could backfire.

WASHINGTON (AP) — Top sanctions officials from the U.S. Treasury Department plan special international trips this month to pressure firms and countries still doing business with Russia to cut off financial ties because of the war on Ukraine.

The message is that those working with Russia’s government must decide:

1. Continue to provide Moscow with material support or

2. Keep doing business with countries that represent 50 percent of the global economy.

Those are the choices to be laid out, senior Treasury officials told reporters on a call Friday. They spoke on the condition of anonymity to preview the travel plans.

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For his opening monologue and first interview tonight, Fox News host Tucker Carlson outlined the ramification of non-western nations now trading in alternative currencies to the U.S. dollar.   {Direct Rumble Link Here]  As the dollar diminishes in value, and as an outcome of Biden using U.S. treasury bonds as part of the sanction regime against Russia, various non-western nations now perceive holding dollars as exposing themselves to risk.

Carlson is joined by Luke Gromen who accurately notes the dollar as a global trade currency may continue, but foreign nations holding U.S. treasury bonds as an asset will likely start contracting.  The result of U.S. treasury bonds returning after maturity with no repurchase, would be an inability of the U.S. to borrow against their sale. This could, perhaps likely will, severely diminish the amount of money the U.S. congress can spend.  WATCH:

None of this should come as a surprise to those who have paid attention. Factually, in March of last year, one month after the Russian sanctions were announced, the International Monetary Fund’s (IMF) Deputy Managing Director said the sanctions against Russia are likely to undermine the US dollar’s global dominance as a trade currency.  Everyone could see this coming.

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You know, it’s funny.  If you viewed the world through the prism of western corporate media, aside from North Korean Chairman Kim Jong-un, the other world leader to draw the strongest criticism from President Trump was Mexican President Lopez-Obrador.  Yet, both Chairman Kim and President AMLO are two of Trump’s strongest defenders against the leftist regime of Joe Biden.

Secondly, I have to give heaps of credit to President Lopez-Obrador for his comments about the Biden administration’s targeting of President Trump.  If there was one leader who was closest in proximity to feel genuine retaliation from the American targeting operation, it would be AMLO.   Yet for two years this guy has faced-down the Biden administration, undressed Biden verbally and publicly while refusing to acquiesce to the #1 priority of the current U.S. regime around energy policy.

I will admit, with all of my former reservations about the soft-socialist tendencies of AMLO, he has been a far better steward for the interests of the ordinary Mexican people than I ever suspected he would be.  On the economics of the issues critical for Mexico in the long term, Lopez-Obrador has been solid as a rock.

WASHINGTON DC – Mexican President Andres Manuel López Obrador on Wednesday slammed the history-making charges against former President Trump, but as U.S. politics is consumed by the indictment, most world leaders have been largely silent on the issue.

[…] López Obrador spoke Wednesday, doubling down on comments he made last month before charges against Trump were announced and saying the case is political.

“Supposedly legal issues should not be used for electoral, political purposes,” López Obrador said. “That’s why I don’t agree with what they are doing to ex-President Trump.” “It should be the people who decide,” he added.

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According to inside media sources, Saudi Arabia was under the impression the Biden administration was going to begin refilling the U.S. Strategic Petroleum Reserve two months ago. However, the Biden administration made no efforts to do that.  As a consequence, Saudi Arabia and OPEC+ which includes Russia, decided to cut production in line with diminished global energy needs as a result of a slower global economy. {Background Here}

Tucker Carlson outlines the ramifications of increased oil costs on the American electorate {Direct Rumble Link} while his guest Brian Brenberg from Fox Business News, accurately points out that Joe Biden wants to keep energy prices high to support his climate change policy initiatives. WATCH:

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Before getting to the headline, I want to remind you what CTH outlined two years ago about these massive food price increases.

You might remember me saying that processed food prices will increase at a much greater rate than fresh or lesser processed foods.  Factually, even organic products (ie. produce) could/would end up less expensive (in relative terms) to the increase in price at your supermarket, as compared to the price increases for the more processed foods.

The reason is simple, processed food use more energy; energy prices are skyrocketing; the processing costs (packaging, transportation, freezing, sanitizing, storage, warehousing and distribution etc.), at each step of the processing cycle, in addition to higher labor costs, drive up the end result of the price.

In this energy driven inflationary environment, less processing and handling equals lower overall cost increases from field to fork.  More processing, handling, distribution equals higher overall costs.  This is simply a supply chain, truism.

Into this issue comes McDonald’s Corp.  Last I heard, approximately 85% of McDonald’s business was franchise.  The franchise has to purchase the product (food) from the main company.  Supply side cost increases in the food are transferred from the company to the franchisee via higher product costs.  The restaurant is then forced to raise prices to accommodate their increased costs.  A portion of the revenue from sales then flows back to the main company.

It is important to note here, there is a natural disconnect in supply side price increases within the franchise model.  The parent company must, must, negotiate the best possible contract terms with the suppliers because the increases in costs are passed directly to the franchise.  The parent company doesn’t immediately feel any problem until the revenue from the franchise drops due to the forced raising of retail prices and diminished sales.  There is a lag.

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