Happy Friday!

It’s been a decent week in the markets despite a choppy macro outlook, with indicators pointing in diverging directions. Live indicators on spending are holding up decently well, but cracks are beginning to appear in areas of the economy that typically lag the macro landscape—such as unemployment, construction, and the like.

The Michigan survey aligns with what we are seeing elsewhere, with an increasing gap between present conditions and future expectations. It is very unusual to see such a gloomy sentiment about the economy in the University of Michigan survey without expectations also trending lower. We have to go back to the 1970s to find something similar in the survey. Notably, there has been a deterioration in credit conditions, with respondents indicating that the timing for buying large durables is abysmal.

This pattern is typical as we approach the bottom of a business cycle, and it makes sense that the Fed is close to commencing a cutting cycle in response, even though inflation is not fully cooperating with that view.

Chart 1a: US construction is weakening, which is a bad signal for the economy

Chart 1b: The spread between the present and the future is very wide in consumer surveys